The criteria for banks to grant a mortgage will be strictly regulated and supervised from January. Whether it’s the duration, the debt ratio and even the maximum rate, here is what you need to know.
Unsurprisingly, the recommendations on the conditions for granting real estate loans will become mandatory rules. The High Council for Financial Stability (HCSF), which associates among others the Ministry of the Economy and the Bank of France, had warned last year that its recommendations in the matter would soon be imposed, which will be the case. January 1, 2022. This is in addition to the regulations on the maximum rate applicable for a home loan or “usury rate”. Overview of the rules that apply.
The effort rate, that is to say the total amount of the costs of current loans (whatever their nature) compared to income, is set at 35% at most.
In other words :
Effort rate = ((monthly payments of outstanding loans and insurance on these loans over one year) / (net annual income before tax)) x 100
The income corresponds here to the “net income before tax of the borrower, or of the tax household (or to the sum of the net income before tax of the co-borrowers where applicable) calculated as the net taxable income (…), increased flat-rate reductions taken into account and reduced by exceptional non-recurring income “, specified the HCSF in its recommendation of last January (which therefore becomes mandatory from January).
“With regard to property income, the income to be taken into account is the gross income before deduction of any tax allowances and charges, including interest on loans and borrower insurance”, further specified the HCSF.
Note that banks are also encouraged to retain “prudent discounts” on certain income (such as regular bonuses, overtime or rents collected). For example, some banks only take into account 70% of rental income. But on this point, it will be the responsibility of each establishment.
On the cost of credit side, banks take into account all outstanding loans (the mortgage itself but also other consumer loans, for the car, for studies, etc.). These are the costs associated with the repayment of the principal, the interest and the insurance of the loan (s).
The HCSF sets a maximum debt period of 25 years in the general case. However, there is a tolerance to go to 27 years when the loan includes a grace period of 2 years (25 years therefore + 2 years of grace). This is for example the case for households who buy off-plan in Vefa (sale in the future state of completion) or those who carry out heavy renovation work in the old (the amount of which represents at least 25% of the total cost of the operation).
Maximum authorized interest rate
Banks remain subject to the rules concerning the “usury rate”, which corresponds to the maximum overall effective rate to which they are entitled to lend, under Article L. 314-6 of the Consumer Code.
The interest rate includes the nominal rate, loan insurance, administration and brokerage fees. To determine the usury rate, the Banque de France bases itself on the average of the rates granted by credit institutions over the previous 3 months. This average is then raised by a third to define the wear rate.
Currently, the usury rate in force for mortgage loans until the end of September is set at:
- 2.47% for a fixed rate loan with a term of less than 10 years
- 2.44% for a fixed rate loan with a term of between 10 years and less than 20 years
- 2.48% for a fixed rate loan with a term of 20 years or more
- 2.93% for a bridging loan
Possible exceptions to the rules
Banks have the right to derogate from the rules concerning the effort rate and the duration of loans (but not those concerning the usury rate) for 20% of the production of new loans (excluding bridging loans, renegotiations, redemptions and consolidations. credits).
But this “flexibility” should concern 80% buyers of their main residence and 30% first-time buyers.
Who controls the application of these rules?
It is the policeman of the financial sector, the Prudential Control and Resolution Authority (ACPR), who will be responsible for verification and, where applicable, sanctions, based on monthly reports shared by financial institutions.