On Thursday December 17, the French High Council for Financial Stability (HCSF) announced that it was easing constraints on mortgage lending, and relaxing recommendations issued a year earlier. Although the conditions are more flexible, the HCSF's recommendations will be binding on banks from summer 2021.
Three points of flexibility in the granting of mortgages
Over the past year, real estate industry players have repeatedly voiced their opposition to the HCSF's recommendations, issued at the end of 2019. Intended to prevent the market from spiraling out of control, these recommendations focused on two main points: the repayment period for mortgages should no longer exceed 25 years, and the affordability ratio should be capped at 33%.
In a press release issued on Thursday December 17, the HCSF reviewed a number of points, slightly relaxing the conditions for granting home loans. For example, the effort ratio is now capped at 35% instead of 33%, and the maximum loan term, while still fixed at 25 years, takes into account repayment deferrals linked in particular to the duration of the work, up to a limit of 2 years. It could therefore extend to 27 years.
In addition, banks have a margin of flexibility: they can accept a percentage of applications that do not meet these conditions. This margin of flexibility, previously set at 15%, has now been increased to 20%.
An unexpected decision in an uncertain context
While the conditions for granting home loans have been relaxed, there is one fundamental point to remember: until now, these rules have only been recommendations, but they will become legally binding on banks from summer 2021.
At a time when French households are the most indebted in Europe, with debt levels approaching 100% of gross disposable income by mid-2020, the HCSF's decision to relax its recommendations is surprising, to say the least.
It could be explained in part by a political desire toavoid an unpopular measure, as the recommendations issued at the end of 2019 risked depriving young households of any possibility of access to home ownership. "It' s essential for us that French people have easy access to credit that gives them access to housing when they are first-time buyers," said Economy and Finance Minister Bruno le Maire, who chairs the HCSF.
What's more, the building and construction sector is impacted by the pandemic, and the French Building Federation (FFB) estimates that 50,000 jobs will be lost by 2021. With the presidential elections approaching, the HCSF's recommendations, as issued at the end of 2019, represented an additional risk to the construction market, by restricting the possibility of taking out a home loan.
Be that as it may, real estate professionals made no secret of their satisfaction at the announcement of these relaxations, which they had been calling for for many months.