The authority that ensures the country’s financial stability demands that the banks better manage real estate financing to reduce the indebtedness of the private sector.
The French in debt of $ 1,066 billion in housing outstandings
Has the death knell struck for the frenzy of homeownership? Helped by the exceptionally low conjuncture of interest rates, mortgage loans have been a resounding success.
The Banque de France has in fact valued at more than 24 billion dollars the new outstandings released by credit institutions to help the French to buy their housing in October 2019. Compared to last year, is 6.7% growth, sustained and stable growth in recent months. There is no doubt that many households want to obtain their owner status thanks to bank financing.
This euphoria worries the High Council for Financial Stability, a prudential body attached to Bercy, whose mission is to anticipate the risks that can harm the entire tricolor economy. Its 23 rd meeting took place on December 12 to address the dangers of the level of personal debt estimated to be high.
High Council for Financial Stability at work to limit household debt
The published report highlights the High Council for Financial Stability’s concerns over the conditions for granting mortgage loans. The banks would indeed have relaxed their access conditions too much so that modest incomes could enter the criteria. If this is good news for small budgets, the council points to an excessive increase since 2015 (+ 5%) on the part of borrowers whose rate of effort is greater than 33%, symbolic threshold a generally does not exceed.
In addition, banks are always lending more and over longer periods. The Housing Credit Observatory speaks of an average of 230 months for loans in the process of being repaid, i.e. over 19 years.
This is a fact to be correlated with the desire of establishments to finance more and more housing projects to retain their customers. For this, they offer reduced monthly mortgage payments with modest incomes which mechanically lead to an extension of the repayment period.
The ACPR will inspect the good conduct of the banks
The increase in debt and duration indicators confirms the High Council for Financial Stability’s position on risk management. The council therefore orders the banking establishments to more vigorously assess their mortgage applications and to tighten their granting criteria. The goal: to avoid at all costs that households exceed the 33% debt ratio, after the addition of the new monthly mortgage, and stop offers beyond 25 years.
The High Council for Financial Stability nevertheless leaves a margin of error since the banks will be able to exceed the 33% threshold for 15% of their production of outstanding without however exceeding the limit of 7 years of income to repay the borrowed capital and its interests.
The Prudential Control and Resolution Authority (ACPR) will ensure that professionals comply with these recommendations. The High Council for Financial Stability wished to reiterate its intention to ask the legislator in the event of a negative attitude towards the warnings to be applied. If lenders want to avoid pretending to be bad students, it is possible that the mortgage tap could slow down in 2020.