Despite falling interest rates, banks are tightening the screws in their selection of home loan applications, causing customers to reconsider or abandon their plans. According to broker CAFPI, nearly 30% of new mortgages have collapsed in just one year.
Interest rates down slightly
The accommodating monetary policies in force for several years have put pressure on interest rates and enabled borrowers to benefit from very attractive borrowing conditions. The Crédit Logement/CSA Observatory notes that mortgage rates reached 1.24% in August 2020, across all terms. In September, the average rate was 1.22%. More specifically, it was 1.02% for 15-year mortgages, 1.19% for 20-year mortgages and 1.46% for 25-year mortgages.
Average loan term falls
Having risen by almost 4 months during the confinement period, the average term of mortgages fell in Q3, to 227 months. Longer terms have cushioned the effects of rising interest rates and rising house prices.
On the property market, 50.6% of mortgages are taken out for a term of 20 years or less, and 48.6% for between 20 and 25 years. Only 0.8% of loans are for more than 25 years, according to the Observatoire Crédit Logement/CSA.
Banks are demanding more and more in terms of downpayments
While lending rates remain very attractive, the tightening of lending conditions is penalizing the most modest households wishing to become homeowners. In fact, preferential conditions are reserved only for the best profiles: people with a permanent contract, a minimum annual income of 100,000 euros and no other outstanding loans.
Certain professions have every reason to accelerate their plans, as banks no longer hesitate to check the financial soundness of their employers. Employees in sectors affected by the crisis (tourism, catering, aeronautics, etc.) are the most concerned. To reassure their bankers, borrowers are obliged to finance at least the notary and loan guarantee fees, as well as the cost of any renovations, out of their own pockets. Over the first 9 months of the year, the level of their personal contribution rose by 7.9%.
This market trend is mainly due to the recommendations issued by the French High Council for Financial Stability (HCSF), which require banks to stop lending beyond 25 years and to deviate from the maximum debt-to-income ratio of 33%. The aim is to avoid exposing banks to excessive risks of non-repayment in the event of an economic crisis. Although banks are allowed to depart from these rules, this must remain marginal.