A source close to the matter said on Monday that the Bank of France and the Minister of Economy do not plan to adjust the method for calculating the rate of erosion, or to waive it exceptionally, as players in the real estate sector struggle, worried about rising interest rates.
Concretely, no bank, including all costs, can lend at a rate higher than the usury rate, calculated on the basis of the average rates granted during the previous three months, an increase of one third. Aiming to protect individuals from abusive borrowing terms, it is appointed quarterly by the Banque de France.
However, with mortgage rates rising sharply between January and June and the erosion rate currently being calculated from loans granted in the first quarter of 2022, the number of proposals from banks exceeds this legal range, raising fears of a real estate market takeover. Because in case of overrun, the loan cannot be granted in the end.
15% drop in new home sales
A source close to the member of the Supreme Council for Financial Stability, a body that shares with the ministry among others for the economy and the Bank of France, explained, but has no right regarding the rate of erosion.
The source added that the attrition rates will rise as of July 1, due to the inclusion of loans granted between April and June.
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But for the many real estate players, particularly brokers, who are bearing the brunt, this may not be enough, as mortgage rates continue to rise. The Real Estate Developers Association on Saturday expressed concern about a 15% one-year decline in the number of new homes sold to individuals in the first quarter.
To avoid a market blockage, two possibilities are regularly mentioned: revising the calculation method, for example by taking into account only June and thus excluding loans granted in April and May, often at low rates, or temporarily suspending the wear rate.
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Thus, the Governor of the Bank of France can propose an exception, but does not plan to hold the exceptional circumstances that would justify it, as specified by the source.
She added that with regard to modifying the calculation method, we cannot modify it in this way, because it is above all preventive, especially for individuals.
However, the authorities are working on adjusting the wear rate network for local authorities, and are planning to add a category for loans with a maturity of more than 10 years, which does not exist today.
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