Banks

Historic record drop in the maximum rates at which banks lend

The usury thresholds applicable to home loans fall again, from April 1, 2022, to reach their historic low. This is bad news that signals an increase in the refusal of credit.

In order to protect those who borrow money from banks, the legislator has established a usury threshold, i.e. a maximum Annual Effective Rate (APR) beyond which it is prohibited for a establishment to lend money, under penalty of legal proceedings. To calculate this usury threshold, the Banque de France collects the average effective rates charged by credit institutions increased by one third.

Published in the Official Journal at the end of each quarter for the following 3 months, the usury thresholds vary according to the categories of loans (consumer credit, home loans, account overdraft, revolving credit, etc.), amount borrowed and duration. For the 2nd quarter of 2022, if the usury rates for mortgages go up on short durations of less than 10 years, they fall – again – for loans over 20 years, to reach 2.40%, against 2.40% a year ago. However, long-term loans are the most requested when buying real estate.

Evolution of attrition rates in 2021 and 2022 Banque de France and YouFinancer

Historical low for loans of 20 years and more

Attrition rates are currently completely decorrelated from market reality,” analyzes Sandrine Allonier, director of studies at Vousfinancer, because the calculation of the attrition rate is based on the rates actually granted during the previous quarter, plus a margin of a third, this poses a problem in the event of a rise in rates.

“But in January and February, we could still borrow with a very good profile at less than 1% over 20 years. The recent and very sharp rise in rates has therefore not been taken into account, or only very little. It is this 3-month lag which thus causes a scissor effect which excludes a larger category of borrowers from credit,” adds Sandrine Allonier.

For example, a couple in their forties with an annual income of €45,000 wants to borrow €200,000 over 20 years, with a 10% down payment. A large national bank offers him a rate of 1.95% over 20 years, with an insurance of 0.30%. The monthly payment, insurance included, will be €1,057 and the APR including the Housing Credit deposit of €2,630 and €1,000 of administration fees of 2.70%. While their debt ratio will only be 28%, this couple will be refused mortgages because they exceed the usury rate by 0.30%.

“Fortunately there are solutions, such as trying to negotiate the credit rate, the application fees, playing on insurance coverage or reducing our brokerage fees, but they are not sustainable over time…” concludes Julie Bachet, Managing Director of Vousfinancer.

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