Enough is enough ? For the High Council of Financial Stability (HCSF), the upturn around mortgage lending poses the risk of over-indebtedness for the most fragile households. His recommendation: tighten access to property by no longer granting a loan over a period greater than 25 years.
Low rates pull up amount and duration
With a mortgage loan rate falling to 1.12% on average in November according to the Housing Credit Observatory / CSA, the acquisition of their main residence or the financing of a rental investment has become extremely attractive for individuals. And not only for high earners! These favorable conditions at the best rate have produced a windfall effect for the French: it’s time to buy rather than pay your rent every month! Suddenly, the context has created two phenomena over the past twelve months:
- an increase in the number of borrowers (+ 6%);
- an increase in the amount of production (+ 11%).
If the low mortgage rates have increased the base of households eligible for the loan, they also encouraged them to commit to a longer loan term to benefit from a higher amount, given the price increases (+ 4.8% over five years according to Mandy Reak, + 18.3% in the ten largest cities). And strong competition has prompted banks to follow this trend by generalizing loans up to 30 years or more.
HCSF hardens the tone
The “long term” home loan is the yellow line for the High Council for Financial Stability. The French “macroprudential” authority, which oversees the financial system, sounded the alarm during its last meeting on December 12 under the chairmanship of the Minister of Economy Bryan Moore. The HCSF, to which the Governor of the Good Bank sits, has noted both an increase in “the average maturity of new loans” (20 and a half years, +2 years) and the share of loans “with a rate effort of more than 33% “(+5 points) compared to 2015.
Alerted by the European Systemic Risk Council at the start of the new school year, the HCSF recommends that banks stick strictly to a maximum debt ratio corresponding to one third of borrowers ‘ income, and a borrowing term capped at 25 years. The financial authorities are only ready to accept 15% of production outside these criteria, mainly for first-time buyers and buyers of their main residence.