Among the measures announced by the government to cause a real estate supply shock, the Minister of Ecological Transition Christophe Bchu declared that he wanted to begin discussions with the banks around the loan ultimately. We’ll explain it to you.
Restore real estate purchasing power to the French. Here is the line adopted by the Minister of Ecological Transition Christophe Bchu in an interview given to Parisian Monday February 12. To do this, the minister believes that banks must make efforts. This involves new financing mechanismsI am thinking of bullet or mortgage loans, as already exists in Switzerland where it works very well.
As a reminder, when you take out a classic real estate loan, each monthly payment allows you to repay part of the borrowed capital. In the context of a final credit, the chances only include interest and possible insurance contributions. The remaining capital owed by the borrower does not decrease throughout the financing, the interest is calculated each month on the same basis, and this amount remains identical throughout the duration of the loan. It is only at the last monthly payment that the borrowed capital is fully repaid.
Credit ultimately, very rarely appropriate for property ownership
For his part, Christophe Bchu imagines a loan based on the following principle: You want to buy a property, you take out a loan over 20 or 25 years, not on 100% of the price but on 80%, which you typically repay over time. The remaining 20% remains in the form of a mortgage on which you only repay the interest and not the capital. This will only be refunded upon resale. What the minister is proposing is therefore rather a hybrid system between the classic real estate loan and the final or mortgage loan.
The problem is that equal characteristics (amount, rate, duration) a loan ultimately generates a greater total amount of interest expense than a traditional loan. It is therefore difficult to see this announcement as an improvement for borrowers who are currently in difficulty. In France, bullet loans can sometimes be appropriate in certain property or rental investment transactions. and very rarely in ownershipalso reminds the French Banking Federation.
However, nothing is yet set in stone, this idea is only in its infancy today. Christophe Bchu will meet all the players in the banking sector at the end of February to discuss it, the minister’s office explained Monday evening.