Held responsible for all the current evils of real estate credit, the wear rate will be modified on October 1 for the next three months. After having long denied any problem, the Banque de France has promised in recent days a more marked increase in order to allow more households to borrow. Here is what you need to know about the rate above which banks are not allowed to make credit.
It is on everyone’s lips and condenses all the criticisms. The usury rate, the maximum rate above which banks are not allowed to offer credit, has posed many problems for several weeks since it would block access to borrowing for more and more individuals. If the rate of wear is going to be modified from October 1st, it is, until September 30th, fixed 2.57% for mortgages of 20 to 25 years, and 2.60% for mortgages under 20 years. what is the rate of wear and why is it singled out? Response elements.
1 – what is the wear rate for?
The rate of wear has not always been described, far from it. The objective, when creating this rate, was to protect borrowers because banks could lend aberrant rates. It was a kind of ceiling rate so that the banks cannot do anythingexplained recently Sandrine Allonier, director of studies for the broker Vousfinancer, MoneyVox.
Faced with criticism, the Governor of the Banque de France, Franois Villeroy de Galhau, regularly reminds us that the role of the Banque de France is to calculate the rate of wear and tear on mortgages on the basis of the provisions set by the law to protect borrowers.
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2- How is the rate of wear calculated?
Schematically, to calculate this famous wear rate each quarter, the Banque de France takes an average of the loan rates granted over the previous three months, all costs included (borrower insurance, application fees, etc.), i.e. the annual percentage rate (APR), and it adds a margin of one third. On paper, the central bank therefore uses the average of the credit rates applied by the banks during the last three months to set the rate of wear for the next three months. But in fact, the feedback of information is not so fast, the data used so far were rather those of the beginning of the quarter. A problem of timing, while banks adapt for the most part their credit rates twice a month.
The impact of the current wear rate calculation method
Let’s take a simplified example based only on the nominal fixed rate, and not on the APR, to illustrate the difference depending on the data taken. Imagine that in September, the average rate of loans over 20 years is 2%, against 1.85% in August and 1.57% in July. Over 25 years, it is 2.17% at the end of September, 2.03% at the beginning of August and 1.87% in July.
Thus, the calculation for the Banque de France is as follows: (1.57+1.85+2+1.87+2.03+2.17)/6 = 1.915 + 1/3 of 1.915 = 2.55% wear rate for 20 to 25 year loans .
But if the Banque de France only bases itself on the figures for the first month of the quarter, i.e. the rate of 1.57% for July 2022 for 20 years and 1.87% for 25-year loans, then the wear rate goes down 2.29%. A difference of 0.26% which penalizes many borrowers.
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3 – What is the scissor effect?
The data used so far by the Banque de France seems to be those of the first weeks of each quarter. While this method of calculation did not pose a problem when rates fell, the current strong rise is halting the process. This is called the scissor effect. With a current average of 2% over 20 years, not including ancillary costs, mortgage rates have returned to 2017 levels. in July 2017, the usury rate was 3.25% for loans of 20 years and over and not 2.57% as currently.
4 – What are the consequences for obtaining credit?
In early August, an OpinionWay survey commissioned by 6 professional associations of intermediaries in banking operations and payment services (IOBSP) explained that 40% of credit intermediaries noted that 40% of loan applications were refused by banks in due to wear rate. For its part, the broker Pretto estimates that the number of borrower files that exceed the attrition rate already amounted to 24% in April 2022, against only 4.3% in 2021. Conversely, the Banque de France assured in early September that these figures are not very credible. Moreover, no association representing borrowers and families has asked for an increase in the usury rate.
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5 – What calculation of the wear rate for October 1st?
Still, Franois Villeroy de Galhau, the head of the Banque de France, seems to be less radical in recent days. For example, he received a delegation of several brokers on September 20 and assured the crowd that given the data collected from the banks, the rate of usury will thus normally be raised on October 1, in a well-proportioned way and more marked than last June, in agreement with the Minister for the Economy and Finance.
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If the method of calculation strictly speaking will not evolve (no question for example of taking out the borrower’s insurance from the APR), the data used will be more precise than for the previous calculations. Rather than an average over the first month, the latter could be done over two and a half months, as the Banque de France has confirmed. Capital. Clearly, the rates used to average will not only be those of July, but those going from July 1 to September 15 approximately. Will borrowers be able to access credit more easily by the end of the year? The Banque de France will release the attrition rates for the fourth quarter by Saturday.
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