It has been almost two years since the banks, considered too lax in the examination of housing loan files, had been called to order by the financial authorities. In the midst of the euphoria of the mortgage market, institutions took too many liberties, extending the duration of loans and accepting borrowers whose rate of effort (the monthly repayment in relation to income) often exceeded the maximum threshold of 35%.
For “Put an end to the worrying deterioration in the conditions for granting mortgage loans” and to protect households from over-indebtedness, the High Financial Stability Council (HCSF), a body chaired by the Minister of the Economy Bruno Le Maire, had made initial recommendations in December 2019. From now on, the simple recommendation becomes a “Legally binding standard”. It will apply for loans disbursed from 1er January 2022 and it will be up to the Prudential Control and Resolution Authority, the banking policeman, to monitor its proper implementation. The supervisor will also decide on the penalties to be applied to the offending banks, from reprimand to fine, depending on the seriousness of the breach. Enough to “Anchor good practices over time”, underlines the HCSF, in a press release published Tuesday, September 14.
“This will not change anything in the access of households to credit”
If the framework becomes binding, the criteria, on the other hand, remain identical to those laid down in the latest recommendations. “This will therefore not change anything in the future in household access to credit”, we explain to Bercy. The borrower’s effort rate thus remains limited to a maximum of 35%, and the debt period to twenty-five years (to which can be added a maximum period of two years of deferred amortization) but banks can derogate from these criteria for 20% of the credits, under certain conditions. This flexibility should concern 80% of the acquisition of a main residence and 30% of first-time buyers.
Financial institutions have generally complied with the instructions of the regulators. In the wake of the first warnings, they tightened their conditions of access to credit. According to a report by the HCSF, the share of new loans with a maturity of more than twenty-five years increased from 12.8% in January 2020 to 6% in July 2021. The document reports a “Significant reduction in the share of loans not complying with the recommendation, which reached 20.9% of production”, that is “A proportion now very close to the maximum flexibility margin planned of 20%”. At the same time, “Access to credit remained very favorable and the real estate market dynamic”.
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