The debt-to-income cap of 35% of income will not be lifted, at least not for today. The Ministry of Economy, after the meeting of the High Financial Stability Council (HCSF), is not promoting this path to the release of real estate loans, but is proposing other measures to try to restart the volumes of real estate loans. The HCSF aims to restore real estate loan production, which has fallen below 10 billion euros a month since August, unheard of in more than 7 years, according to the Banque de France.
Among these measures, emphasis is placed on energy renovations, but not only that. All work is affected. If the budget for the transformation/renovation is more than 10% of the total amount of the operation, the borrower can use the extension of the duration of the loan from 25 years to 27 years. To date, the work has had to represent 25% of the total cost of the operation to justify such an extension of the loan term. This reduction is therefore an incentive for households that purchase property that requires work. “Support for renovation is a government priority. Every second house is undergoing renovation», explains a source close to HCSF. A mandatory measure that will be introduced in the coming days.
Re-examination of rejected files
Another measure: introduce a system for re-examination of rejected files. In the case of a refusal to provide a loan for real estate, the borrower can have internal access to a third party who will explain the reasons for the refusal or prepare the way for the procedure to re-examine the file. According to our information, the banks will be imposed a maximum period in which to respond to the borrowers’ requests. This will be determined in early January. “The principle is not to offer credit to people who do not have access to it, otherwise we would encourage over-indebtedness, but to objectify rejection situations and facilitate relations between borrowers and lenders. This is a measure intended for the minority of cases that could prove the ability to pay and that would not have the credit, because the agency was possibly at the maximum of its margin at that time.», Explains the source near the HCSF.
The latest measure concerns the bridging loan, which is a system that allows an owner to buy a new property on debt while their current home is not yet sold. Today, this type of loan represents 8% of the distribution of real estate loans. The aim is to exclude from the calculation of the borrower’s interest rate the interest from the bridging loan, i.e. the total amount of the borrower’s expenses compared to his income, which must not exceed 35%. A measure that is not unconditional because the bridging loan is risky.
This system will only be possible if the bridging loan is provided up to a maximum of 80% of the value of the property offered for sale. This measure will only be possible at the request of the loan applicant, who must demonstrate solvency criteria. “If you were at the 35% effort level before today’s measure and applied for a bridging loan, the bridging loan only went through if it was a zero interest bridging loan. From now on, whatever the interest rates agreed for the bridging loan, they will no longer be taken into account in the success rate, unless the success rate represents more than 80% of the value of the property.“. This system will be implemented in the coming days. Finally, banks will have more flexibility to expand the quota of exceptions to the lending rules maintained at 20%. They may occasionally exceed this limit per quarter if they manage to maintain the 20% limit by including the following two quarters.
The French banking federation reacted to these measures without much enthusiasm. “The recovery outlook will depend on the purchasing power of households’ real estate, depending in particular on prices per square meter; other signals may make buyer sentiment more positive, in this regard we note the revisions to the HCSF standards announced today. The banking profession reaffirms its mobilization for the sound financing of the French economy and its utility on a daily basis, in times of crisis and in transitional phases.“. Maël Bernier of Meilleur Taux speaks for himself Figaro: “We didn’t overturn the table. It is a shame that the only effective measure was not granted: the freezing of the HCSF measures. It’s hypocritical to say that banks don’t want to lend when they have restricted credit distribution due to HCSF standards.”