At its quarterly meeting, the Haut Conseil de Stabilité Financière (HCSF - French High Council for Financial Stability) confirmed its recommendations on mortgages issued on December 20. Banks are invited to cap loan terms at 25 years, and not to grant credit if the borrower's debt exceeds 33% of income.
A rise in mortgage loan refusals
Many real estate professionals, particularly agents and brokers, are protesting against these recommendations, which they believe are putting the brakes on the market's recovery after two months of inactivity. According to them, the rate of mortgage refusals has risen sharply, from 5.4% a year ago to 6.6% in mid-June.
The capping of loan terms at 25 years and the 33% borrowing requirement exclude low-income households, as well as investors who already have a mortgage. Even banks find themselves penalized, with usury rates at an all-time low: in April, the maximum legal rate for a 20-year loan was lowered by 0.10% to 2.51%. It had already been lowered by 0.16% in January for loans of 20 years or more.
Banks are applying the HCSF's recommendations, and are currently targeting households with permanent contracts, good incomes and substantial downpayments, and are making sure that they retain sufficient savings after the project to cover up to 6 monthly payments in the event of a hardship. They also pay close attention to the properties financed: they prefer those that are not likely to lose value, so that buyers forced to resell do not have to repay a loan amounting to more than the property itself.
Recommendations that could be made more flexible
At present, the HCSF allows banks a 15% margin of flexibility. Three-quarters of the files that can benefit from this flexibility, and not strictly comply with the loan term and debt ratio criteria, are reserved for people buying a primary residence and first-time buyers.
This flexibility is deemed insufficient by some real estate professionals, who feel that it does not allow mortgages to be granted to households that may be a little over the 33% debt limit, but still have enough to live on.
While the HCSF's recommendations are intended to avoid the risk of household overindebtedness and difficulties for banks, it is not closing the door on adjustments in the months ahead, and indicates that it "will continue to closely monitor developments in the real estate market in light of changes in the economic climate".