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Mortgages: monthly usury rates from February 1

Published on January 23, 2023 by Pierre Belhache - 4 mins reading time
Individuals Real estate Banque de France European Central Bank

Good news for real estate professionals and borrowers: on January 11, the Banque de France approved a change in the calculation of the usury rate, which will now be updated monthly rather than quarterly. This change is temporary and will take effect from February 1 to March 1, 2023. What impact will monthly calculation of the usury rate have on mortgages?

What is the current usury rate?

The usury rate is the maximum legal interest rate that banks are allowed to charge when granting a loan. It is used to protect borrowers against abusive loan offers with excessively high bank rates. The usury rate is in fact the maximum APR (annual percentage rate of charge) that can be applied.

This is the all-inclusive interest rate that includes :

  • the nominal interest rate, or the rate used to calculate interest,
  • administration fees,
  • brokers' fees,
  • insurance,
  • mandatory warranties.

The law prohibits credit institutions from granting a loan when the APR exceeds the usury rate.

The usury rate is calculated by the Banque de France, until now on a quarterly basis and soon on a monthly basis. It is then published in the Journal Officiel.

It is defined for the various loan categories. To calculate it, the Banque de France surveys lenders and finance companies to determine the average rate charged during the previous quarter, and increases it by one third.

The current usury rate can be found on the website of the French Ministry of the Economy and Finance.

 

What changes on February 1?

Because of current inflation, the European Central Bank has raised interest rates. Given the sharp rise in these rates, a technical adjustment was necessary to smooth out the increases in the usury rate and thus maintain access to credit for a greater number of people. However, the usury rate will continue to be set on the basis of the average rate over the previous 3 months. On January 1 this year, the usury rate was revised on the basis of calculations made by the Banque de France for the 4th quarter of 2022.

The quarterly increase in the usury rate was deemed too slow by the banks, which had noticed a slowdown in credit applications in recent months. A monthly review of the usury rate will speed up the process, as it will no longer be necessary to wait several months to find out the current usury rate.

 

In practical terms, this change can unblock some credit applications. This is because, in addition to the rise in interest rates, there are the associated costs (application fees, insurance costs, etc.). The APR, which represents the total amount of credit, may not exceed the usury rate. A monthly update of this usury rate is obviously preferable.

For the time being, this is only a temporary measure, and it remains to be seen whether it will become permanent.