more and more people can no longer take out loans due to the rate of depreciation

With an increase in indicators, some faces are blocked by the wear rate. If they don’t review their project, they won’t be able to get a loan.

Aiming at an apartment under construction, 31-year-old Camilla is about to take out a mortgage when her broker announces to her in early May that the file is blocked: the so-called “wear rate” will be exceeded with the loan rate offered by her bank, which is prohibited. “This is the first time I’ve heard of such a rate,” a Taiwanese woman who has lived in France for almost 10 years and hopes her broker can negotiate with her bank tells AFP.

The usury rate, intended to protect individuals from improper borrowing conditions, is set quarterly by the Banque de France and is relatively unknown to the general public. Specifically, no bank may, inclusive of all expenses, lend at a rate above this threshold, calculated on the basis of the average rates provided for the previous three months, increased by 30%.

“Very fast” ascent

However, since mortgage rates have risen from an average of 36% to 70% between January and May – according to broker La Centrale de Financement – and since the depreciation factor is always calculated based on loans issued before the first quarter of 2022, more and other proposals exceed this legal scope. This “very fast” and “unusual” growth, comments Maelle Bernier, director of public relations at Meilleurtaux, is due to higher interest rates on French government loans, which are relied upon by banking institutions.

In Camilla’s case, the bank offered a rate of 2.20% for 25 years, in line with its budget and financial standards, which require a household’s monthly loan payments to not exceed 35% of its net income. But once all the fees are added in, the annual percentage rate (APR) that serves as a benchmark was 2.65%, well above the depreciation rate currently set at 2.40%.

“We process an average of five files a month, and all five had wear-rate issues this month,” says Camille’s broker, a partner at a small independent firm who prefers to remain anonymous.

For files where “we had (previously) automatic consent from all parties, today we spend almost two or three hours trying to find a solution,” he explains.

10% to 15% blocked

According to several brokers interviewed by AFP, between 10% and 15% of files will no longer be able to get credit except to verify their project. The main victims are people over 40 who “have a very hard time keeping up with the depreciation rate,” Mael Bernier explains, because they pay more for the borrower’s insurance, which covers various risks such as death, illness or disability, protecting both borrowers. and banks against default.

Sophie, 51, almost paid the price. Despite offering his bank at 1.27% for 25 years—a rare loan term at this age—the annual interest rate exceeded the depreciation rate. Luckily for her, the bank renegotiated its offer slightly downward, to 1.25%, opening the door for an annual interest rate of 2.39%, enough to be deadlocked. Although the usury rate will not be recalculated until July 1 and rates should continue to rise until then, Sylvain Lefebvre, president of La Centrale de Financement, is calling for a suspension of the usury rate, which “no longer correlates with real economic life.” “, or to override the calculation method.

But aside from the wear-and-tear issue, the rate hike affects all buyers as the cost of mortgages has mechanically risen. A €180,000 loan for 20 years at 1.45% will end up costing €27,446, according to the Central Financial Authority. This is almost 10,000 euros more than if it had been issued at the beginning of the year. “Projects with the most extended funding plan may need to be reworked,” warns Societe Generale, who advises “checking the funding plan with your consultant before you take it on.”