Mortgage credit: Percy gives the go-ahead for an overhaul to calculate the rate of erosion

Percy has decided, to the best of our information, to accept a change in the method of calculating the wear rate taking into account for the exceptional circumstance From the rapid rise in market interest rates in recent weeks, especially in recent days. As a reminder, the usury rate corresponds to the maximum legal rate that credit institutions are allowed to charge when they give you a loan. This amendment, authorized under the law, aims to better take into account the acceleration of interest rate hikes, while maintaining a fair balance between borrower protection and access to credit. It will be in effect while calculating the new rate of wear and tear from July 1st.

Thus, the rise in interest rates has offset the recent reluctance to review the usury rate, a request that credit professionals have made since mortgage rates hit their lowest level in June 2021 (average rate of 1.05%, all terms combined).

Since then, rates have started to slowly rise, which accelerated sharply in April, and then especially in recent weeks. According to the latest figures from the Crédit Logement Observatory, the average rate (excluding insurance) was 1.38% at the end of April, roughly its level in April 2019. This average rate has risen to 1.49% over a 25-year period. Years.

lag problem

It’s not the absolute level of the mortgage rate that poses the problem – it’s still well below inflation – but the rate of increase, which is much higher than expected. However, this rapid increase – the ten-year OAT rate, which serves as the benchmark for mortgage rates is now well flat above the 2.30% threshold – undermines the interest rate mechanics. de France, to protect consumers from excess credit at abusive rates.

This usury rate is actually calculated, every three months, on the basis of the average rates observed on loans granted in the previous quarter, which increased by a third. Unlike the rates used by Crédit Logement, the wear rate is expressed in APR (Annual Percentage Rate), that is, it also includes additional costs, such as the borrower’s insurance (mandatory for a mortgage) or management fees.

However, due to the quarterly lag, the last usury declined slightly on April 1 to settle, for example, at 2.40% for a loan of 20 years or more. That’s barely ten basis points more than the ten-year OAT, even if banks continue to refinance at a zero rate with the ECB, a rate that should nonetheless drop to 25 basis points in July. But the banks also have to bear the cost of risk, distribution cost and management fees.

Zero margins

“Our margins are zero, even negative,” A banking source tells us. Already, some banks are abandoning production, and players who do not have access to central bank refinancing or deposits, such as some online banks, have hit the brakes directly. In fact, through competition but also through the ceiling imposed by the usury rate, banks cannot easily pass the increase in refinancing cost to their credit pricing terms.

In practice, low real estate prices that rise very quickly, and the rate of wear, which also remains low, due to the time lag given to the method of calculation, creates a scissors effect, which begins to exclude some households, first-time buyers or the most modest, from access to financing . In fact, their profile darkens or exceeds the 2.40% cap very easily, after factoring in all costs, including the commission charged by mortgage brokers.

Hence the need to review the device. However, there is no doubt about the “big night” of the usury rate, as some professionals ask with the idea, for example, of excluding the borrower’s insurance from the calculation of the APR. This may mean that legislative reform is too risky for the relative majority. “If parliamentarians can impose a 0% mortgage, they will be happy about it!”Banking jokes.

The change is more political than technical

So the choice was made to modify the method of calculation, a possibility provided by law, in the case of Exceptional circumstances. And the recent rise in interest rates, which no one really expected, can reasonably be considered an exceptional circumstance.

If technical measures have yet to be determined, according to a source close to Percy, the idea is to give more weight to rates observed at the end of the previous quarter rather than the beginning of the quarter. Especially since the price observed at time t actually reflects a fixed price scale two or three months ago, the time the accepted file is actually released. It is, according to my bank, “To stick more to the reality of prices.”

If this reform of computation at the technical level does not present significant technical difficulties, the question remains sensitive at the political level. Even if the government never showed an excessive love for real estate, it could not afford a bad trial by excluding a portion of the French from home ownership (even if it was generally the banks that were accused of turning off the tap). Especially since in the period of inflation, ownership remains an effective way for families to secure the cost of housing in the coming years (which is not the case for rents). And unlike in 2019, the job market is very good, which boosts the family’s appetite for stone.

Conversely, Percy also does not want to publish too high a wear rate, which risks sanitizing a period of high inflation for the coming months, and this is in the midst of the purchasing power debate. A modification of the method for calculating the rate of erosion may be presented as a simple technical measure: it would be the result of highly political arbitration.