The real estate credit market has recently been criticized in France. But is it really that bad? While many European borrowers encounter major difficulties, French households are mostly spared.
Are first-time buyers the big losers from rising interest rates?, Blocking of borrowers, What are the main victims the rate of wear?… So many articles published in recent months on our site explaining the difficulties encountered by individuals who wish to take out a mortgage.
The current period is indeed synonymous with tension due in particular to a rapid rise in credit rates which rose from 1% to 3% on average in just one year for 20-year loans.
The fixed rate, a real protection for borrowers
But we often forget to say that the French credit system is rather virtuous. As proof, the default rate is very low, 1.24% in 2019 according to the Banque de France. We often tend to attack banks for their way of taking risk, but we forget that this way of doing things is also a way of protecting the borrower, confirms Ccile Roquelaure, spokesperson for the broker Empruntis. In France there is a virtuous system which tends to make the borrower suffer less in troubled times. In Anglo-Saxon countries or in southern Europe, we see that variable rates, which are the norm, have an impact on households.
Thus, according to an article in World, a couple who took out a variable rate loan in the United Kingdom in October 2021 saw their rate go from 1.44% to 4.44% today. The situation is the same in Spain, where 70% of the stock (3.7 million) of mortgages were taken out at variable rates. But remember The worldwith the rise in interest rates, for an average loan of 140,000 euros over twenty-four years, monthly payments have increased by nearly 230 euros, up 44% since 2021.
And the situation is getting worse since the key rates of the European Central Bank (ECB) were further increased on Thursday 16 March, effectively impacting variable rate loans. The latter are in fact partly indexed to the 3-month Euribor interbank interest rate fixed on that of the ECB.
Conversely, borrowers in France who already have a loan therefore remain protected from these increases, thanks to the system of fixed rates. In France, banks finance fixed rates at 96%, compared to just under 20% in Europe. Thus, when there are rate increases, it is not the customer who suffers, develops Emmanuelle Simi, director of marketing and digital banking at LCL. It is indeed the banks that play the role of shock absorber and that take responsibility for the rise in rates. fixed rate, the monthly loan payments therefore always remain the same for the borrower.
How to explain that France, the opposite of certain European neighbors, does not rely more on variable rates? Our financial system is not the same, we have banks which are not just credit or deposit banks but which do both, explains Ccile Roquelaure. created a balance which gives banks less desire to place all the risk on the borrower. And more than on the interest rate itself, the banks are also remunerated on the ancillary products, in particular on the borrower’s insurance or on the savings products that they offer their customers.
A wear rate that has once again become protective for borrowers
If the French who already have one or more loans in progress are therefore generally spared by the various rate increases, the climate has darkened lately for candidates the mortgage, in particular because of the rate of wear. This maximum authorized rate above which a bank cannot lend blocked many individuals between the summer of 2022 and January 2023, before its transition to a monthly calculation since February 1.
Because in France, the rate of wear was so far revised every quarter, taking the average rate of the previous quarter raised by a third. With the very rapid rise in real estate rates (from 1% to 3% over 20 years between January 2022 and February 2023, Ed), this inevitably creates tensions, it took a moment of adaptation, confirms Ccile Roquelaure. But after that time, the usury rate has returned to what it was created for, a protection for borrowers who prevent banks from raising their interest rates too sharply.
Loans based on household debt
Another major difference: in France, the granting of credit is based on the ability of the borrower to repay it, and not on the value of the property. We focus first on the fact that the person who borrows has the capacity to do so. We do not speculate on a supposed value of the property, confirms Bernard Cadeau, former president of the real estate network Orpi France. Thus, in the United Kingdom, the United States or in certain European countries, the amount of the loan depends on the value of the property. The problem is that in the event of a fall in prices, the borrower may find himself in difficulty.
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In Anglo-Saxon countries, the more credit you have, the more you can borrow, while in France there is the debt ratio which makes it difficult to access credit when you already have one, summarizes Ccile Roquelaure. In France, the High Council for Financial Stability (HCSF) has dictated since January 1, 2022 an obligation that borrowers’ monthly payments cannot exceed 35% of their income. Thus on paper, the monthly payments of a household earning 4000euros two cannot go beyond 1142euros.
Bernard Cadeau, however, is skeptical about the standards of the HCSF: Of course, you shouldn’t lend just anyone so as not to create insolvency. But the default rate in France is very low because we know how to study files. However, many borrowers who were eligible for credit yesterday are blocked today. A borrower can perfectly well have enough living left over, even with a debt ratio of 40%.
The HCSF standards would therefore aim to protect the banks more than the borrowers, as confirmed by the economist Xavier Timbeau, principal director of the French Economic Observatory (OFCE): The HCSF standards are not really there to protect the consumer but to limiting the risk taken by the bank, these are prudential standards. They aim to prevent banks from lending too long chances but also to keep the default rate very low.
According to the economist, if the French credit system is objectively more stable than the others, this system is a bit unfair in the sense that there are winners and losers. Indeed, this very low default rate is explained by the very strong selection made on the customers who access credit. We select people who cannot fail, explains Xavier Timbeau. This means that a lot of people are excluded, which forces them to be on the rental market and to pay rather high rents.
It is more difficult to access credit in France than in the United States for example, concedes Ccile Roquelaure. We are a country where there is a real desire to protect consumers and not take risks. The French system remains extremely virtuous and we will see it in the weeks and months to come. The difficulties of many European borrowers are already reminding us of this.
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