The new usury thresholds applicable in July have just been published and they mark an upward acceleration which reflects the recent sharp increase in borrowing rates. The Banque de France also estimates that the effective rate charged by credit institutions between April and June for loans of 20 to 25 years is 3.82%.
It will be recalled that the calculation of the usury thresholds is now done monthly (previously quarterly), a provisional measure which will be extended until January 2024. These thresholds remain established on the basis of the average of the nominal rates of mortgage loans, called also effective or nominal rates charged by the banks during the previous three months.
For loans with a duration between 10 years and less than 20 years, the thresholds change from 4.45% in June to 4.84% in July. For loans over 20 to 25 years, we went from 4.68% to 5.09%, ie a sharp increase of 41 basis points (after +16 basis points in June).
While waiting for the July bank scales
The usury thresholds correspond to the maximum rates at which banks have the right to lend, by adding up the nominal rate, the borrower’s insurance, the application fees and the deposit. According to the brokers, it generally takes a margin of at least 50 to 60 basis points between the nominal rate of a loan and its usury threshold for the file to be financeable. For loans over 25 years, these new thresholds will, for example, allow files to pass with nominal rates of up to 4.50%.
Like every month, it now remains to be seen the magnitude of the increase that the banks will apply to their July scales knowing that we are already around 4% over 25 years currently. Because the other side of the coin of a sharp rise in usury thresholds is that this opens the door to a significant impact on the scales of banks, some of which are still waiting for higher rates to lend more.
For 20-year loans, the usury thresholds should pose less of a problem in July because the nominal rates over this duration generally remain 20 to 30 basis points lower than the 25-year duration. However, loans contracted over 20 to 25 years are subject to the same wear rate limit (5.09% in July).
The usury thresholds can still block certain profiles of older buyers for whom the banks offer high insurance rates and where a delegation of borrower insurance is difficult to pass. A specialist also gave us this week several tips to avoid a refusal of financing linked to the overrun of the wear rates.
Further rate hikes expected
For the future, the latest announcements from the European Central Bank going in the direction of new increases in key rates to fight against inflation, imply that the upward trend in borrowing rates is not yet over. “We maintain our rate scenario at 4.5% by the end of the year, and perhaps even the reappearance of rates at 5% in early 2024… This would be bad news for borrowers whose ability to borrowing would fall even more, and who, without a sharp drop in prices, would be even more unable to buy”, analyzes Sandrine Allonier, spokesperson for the real estate loan brokerage network Vousfinancer.
| Source: Banque de France and Official Journal | ||||
|---|---|---|---|---|
| April 2023 | May 2023 | June 2023 | July 2023 | |
| Loans with a term of less than 10 years | 3.72% | 3.91% | 3.99% | 4.11% |
| Loans with a duration between 10 years and less than 20 years | 4.09% | 4.33% | 4.45% | 4.84% |
| Loans with a term of 20 years and more | 4.24% | 4.52% | 4.68% | 5.09% |
| Bridging loans | 4.31% | 4.52% | 4.67% | 5.04% |