Real estate credit and wear and tear: what will change from February 1, 2023

The wear and tear rate, which limits home loan costs, will be revised monthly, from February through July, against each quarter until now. (©Illustrations / Archives of Le Démocrate Vernonnais)

That is the hope of most real estate professionals: a monthly increase in wear and tear. This will be effective from 1 February 2023, the Banque de France announced on Friday 20 January.

He proposed a “technical adjustment” of this rate calculation, a ceiling loan rate in real estate, that should facilitate (slightly) access to credit for individuals.

The wear rate covers all the costs of a home loan: the credit rate charged by the bank, any brokerage fees, the borrower’s insurance. The method of calculation has, for months, in the context of tariff increases, been a hurdle for many buyers.

A breath of fresh air in the real estate market?

For several months, interest rates have been increasing after the European Central Bank’s prime rate, and faster than this wear rate.

Thus, raising the cap on wear and tear could provide a breath of fresh air to the market: it allows banks to lend more expensively, but also allows every other component of the cost of credit to be accounted for without exceeding the legal limit.

This allows, on paper, in the end, receipt of more credit application files. But the formula for calculating wear and tear rates, prescribed by law, has not changed: the average rate charged by banks over the past three months, increased by a third.

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The Banque de France, on extraordinary grounds during the period of the strongest rate hikes, proposed technical adjustments to better increase the “smooth” usury rate. Publication will be monthly and no longer quarterly for wear rates for all categories, starting February 1, 2023, for rates valid from February 1 to July 1. The wear rate will still be set based on the average rates practiced over the previous three months.

Banque de France, Friday 20 January 2023, in a press release

Imbalance in lending

Banque de France has noticed in recent months that at the end of a quarter “certain files, pending the next significant quarterly increase in wear rates”, are postponed to the start of the next quarter, creating an imbalance in credit distribution.

To smooth out the increase in the wear rate, the calculation is carried out every month and no longer every quarter from 1 February to 1 July. A decree should be published in the coming days to formalize this act.

The idea of ​​this monthly increase was studied at a meeting held at the Banque de France last week and brought together Bercy’s brokers, bankers and services.

Bruno Le Maire pushed in this direction

The governor of the Banque de France, François Villeroy de Galhau himself had called that day a “technical adjustment” before the Senate Finance Committee, noting that “usury rates are intended to protect borrowers from abnormally high rates.

No bank can lend you more than this usurious interest rate. Since January 1, for example, 3.57% for loans taken for 20 years or more (including insurance fees and others).

“Instead of making these adjustments once at the end of the quarter with the big trips, we will do three small trips every month, depending on the previous three months each time”, explains François Villeroy de Galhau.

The Ministry of Economy is clearly pushing in this direction. Bruno Le Maire has even announced, starting this Wednesday, January 18, 2023 french infothat the decision has been made.

The average practiced rate in December is estimated at 2.34%

With real estate prices high and prices rising rapidly, the debt levels of buyers are also worrying. The average practiced rate in December was estimated at 2.34% by the Observatory Credit Housing-CSA, and continues to increase.

These monthly wear rate updates shouldn’t completely unblock credit markets. Faced with continued increases in existing housing costs (+4.2% in 2022 and +14.5% between 2019 and 2022) and rising interest rates, households’ ability to purchase has been impacted in recent months, emphasized the Credit Observatory Housing-CSA.

In 2022, the number of loans disbursed decreased by 20.5% compared to the previous year.

Purchaseable area decreased by 4.5 m² for all of France. The average duration reached new and unprecedented levels: 20.7 years in December (248 months), while in 2001 it was 13.6 years (163 months). The extensions are no longer sufficient to compensate for the consequences of rising house prices or to cushion the impact of the increase in the required level of private contributions, underlined the Observatory.

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