The new usury thresholds applicable in the second quarter of 2022 could penalize borrowers with mortgages over 20 years, while rates are rising.
The Official Journal has published the quarterly usury thresholds applicable to each category of credit from April 1, 2022. These thresholds are the rates above which a credit institution cannot grant a loan (mortgage, consumer, loans to professionals).
Contrasting trends in wear rates
The wear rates published for the second quarter of 2022 rose very slightly for short mortgage terms and amounts between €3,000 and €6,000 for consumer loans. On the other hand, they are falling for the others, in particular for fixed-rate mortgages over 20 years, while the conditions for access to credit practiced by establishments are tightening.
To calculate the wear ratethe Banque de France collects data from a representative sample of institutions on the rates applied during the previous quarter. The rate of wear is equal to the weighted average of these rates increased by one third.
The wear-and-tear thresholds of real estate loans vary according to the duration
As of April 1, 2022, the usury thresholds relating to home loans with a duration less than 20 years go back:
- from 2.44% to 2.51% for fixed rate loans of less than 10 years;
- from 2.40% to 2.43% for fixed rate loans between 10 and 20 years.
On the other hand, the wear-and-tear thresholds for real estate loans drop (very slightly) for:
- fixed rate loans of 20 years or more: 2.40% instead of 2.41%;
- variable rate loans: 2.32% instead of 2.33%;
- and bridging loans: 2.87% instead of 2.88%.
For these home loans, this change in wear and tear thresholds does not yet reflect the increase observed in the average rate of home loans in the competitive sector practiced in February 2022, which was 1.09% against 1.06% at the end of 2021, and particularly with the rise in rates for loans over 20 years (1.03% in February against 0.99% at the end of 2021) and especially those over 25 years (1.17% in February against 1.13% at the end of 2021).
Difficulties ahead for “long mortgages” real estate
On the same date, 56.5% of home loan production was between 20 and 25 years. The rise in rates on long long terms combined with the lowering of the usury threshold for loans over 20 years risks mechanically penalizing a large proportion of borrowers in their access to mortgages.
Indeed, to the “gross” rate presented by the bank, various costs must be added, and in particular the borrower’s insurance. In fact, in certain situations, the annual effective annual rate (APR) of credit exceeds that of usury! And the project is therefore impossible to implement.
How is the Annual Percentage Rate (APR) calculated?
The APR is the rate that incorporates all the mandatory costs included in the loan – which makes it possible to compare offers between establishments. These different costs are both the interest paid to the establishment by the borrower, the costs of borrower insurance (death, disability, loss of employment cover, if applicable), the costs of the mortgage guarantee or surety bond, the costs of files (proportional or not to the amount of the loan), the costs of maintaining the bank account and payment transactions in the event of an obligation to open an account).
The APR must appear in all advertisements and offers of credit as well as in the loan agreement. APR cannot be higher than wear rate.
Disparities for consumer loan usury thresholds
For consumer loans, the evolution of usury thresholds for the second quarter differs for each category of loan concerned:
- loan whose amount is less than or equal to 3,000 euros: the usury threshold drops by 21.17% to 21.11% ;
- loan whose amount is between 3,000 and 6,000 euros: the usury threshold increases by 9.80% at 9.85% ;
- loan of an amount greater than 6,000 euros, the usury threshold remains stable at 4.93%.
For consumer loans, the lower the amount borrowed, the higher the rate! But be careful not to try to borrow a larger sum to benefit from a lower interest rate. In order not to increase the amount of the monthly payments beyond its repayment capacities, the loan will have to be repaid over a longer period. This will increase the total cost of credit.