Has the mortgage market changed in nature? The first signs of a profound transformation of the market, against a background of increasing rates, economic uncertainties and limitations imposed on banks in terms of granting credit, seem to be confirmed month after month.
According to the latest study of the Crédit Logement Observatory/CSA, the growth of mortgage loans accelerated sharply in May. The average rate (without insurance and securities) has thus reached 1.38%, against 1.28% in April, with an average duration of loans longer than two months to 240 months. This average rate is close to 1.5% on loans over 25 years.
In total, the Observatory underlines, the increase in rates has been much faster for three months, by 32 basis points from December 2021, an increase that remains significantly lower than that of inflation (+139 basis points) ) or the decade. OAT (+146 basis points). Clearly, the banks have tried to mitigate the shock of the increase in interest rates on their credit supply. Therefore, all borrowers also benefit from credit rates well below inflation, a situation not seen since the late 1950s.
Wear rate in the collimator
Banks are also limited in their ability to increase their scales by the usury rate, currently 2.40% on loans over 20 years. Revised every quarter by the Banque de France on the basis of the average effective rate charged by the banks during the previous quarter, including the price of mutual insurance, this usury rate limits the possibility of an increase for the banks also of no longer. the most fragile cases are excluded from mortgage loans. Between the “loss sale” (risk cost and refinancing cost) and the usury rate, the banks’ room for maneuver is increasingly restricted.
This is also what some bankers and brokers complain that support a reform of the usury rate. According to the AEF agency, Bercy would not be closed to the idea of a legislative change and the governor of the Banque de France, François Villeroy de Galhau, admitted on Tuesday, during the presentation of the annual report of the ACPR, that “the subject is more sensitive in the phase of inversion of the taxes that we had today.” Some professionals have advanced in particular the proposal to exclude the cost of mutual insurance from the calculation of the rate of wear.
Crowding out effect
For the Observatory, the extension of the average duration of a loan (to 20 years) – two thirds of the loans granted are for a period of more than 20 years – has made it possible to mitigate both the increase in real estate prices but also the constraint imposed on banks to comply with a rate of effort (repayment on income) of new borrowers below the limit of 35%. But, underlines the Observatory, the mortgage market continues to deteriorate, especially since the beginning of the war in Ukraine.
In more than three months (from March to May), production fell by 14%, in volume and value. The number of loans has returned to its level of September 2020 (in the first exit from the confinement) or spring 2015. In May, the number of loans has also fallen by 27% year on year (-20% for production).
Increase in the share of wealthy families
“Since March, the transformation of customers is more marked (…) and the share of wealthy families is increasing”, indicates the Observatory in its note. Thus, the average cost of a real estate transaction has grown a lot (by 8.4% since the beginning of the year, year to year).
In other words, the most modest families see the doors of real estate loans close while the real estate projects of the richest families are increasingly expensive. An effect of eviction that the public authorities and the Banque de France contest, at least as a result of the regulation of the High Council for Financial Stability (HSCF). Even on the issue of the usury rate, the governor of the Banque de France still does not see “obviously”.