Real estate: borrowing over 25 years is no longer enough to offset the rise in prices in 2022
Times are tough for property developers. With the constant rise in prices and the rise in interest rates, they have to borrow over longer and longer periods, without, however, exceeding the regulatory limit of 25 years. However, the approach remains very difficult in the face of the low rate of wear and the requirement of personal contribution. Sharp increase in property prices Price growth remains sustained in old property, recording an increase of 2.9% between May and July 2022, also +2.9% over one year (LPI-SeLoger barometer August 2022). These are the houses that show the most marked increase with an evolution of +3.5% over three months, but a decline of 0.1% over one year. Apartment prices increased by 2.5% over three months and soared by 5.2% over one year. The rise in prices in the old sector continues in 91% of cities with more than 50,000 inhabitants, with an annual growth rate of at least 5% in 59% of large or medium-sized cities and more than 10% for 22 % of municipalities, all located in the provinces. In the new, the rise in prices is reinforced more strongly with an increase over three months of 4.6% for houses and 2.8% for apartments. This price trend is due to that of construction costs attributable to soaring inflation. It has the effect of discouraging a good number of potential buyers who are already hampered by the granting rules and the constraint of mobilizing personal contributions. Ever-higher interest rates Applicants for a home loan have also had to deal with the sharp rise in interest rates since March 2022. According to the Crédit Logement Observatory, the average rate for all durations was 1.82 % in August (excluding the cost of home loan insurance and the cost of securities), compared to 1.70% in July, 1.52% in June and 1.19% in March. The increase in values was accentuated during the summer in connection with the first increase in the key rates of the ECB (European Central Bank) at the end of July. The new increase of September 8, 2022 will continue to increase the cost of money and penalize borrowing households. It is now almost impossible to go into debt below 2%. Even if all borrowers benefit from loans at rates well below inflation (5.8% over one year in August), access to mortgages is becoming more and more complicated. The banks are limited in their margin of maneuver by the usury regulations, they cannot raise the borrowing rates to the extent of the monetary evolution, but the difference between the gross rate and the usury rate is insufficient to release an APR below the maximum legal rate. Access to credit hampered by usury For the record, the usury rates, which are the maximum rates beyond which the banks cannot lend, apply to the APR (Global Effective Annual Rate) and not to the gross rates displayed by credit institutions and brokers. In addition to interest, there are all the other costs relating to obtaining financing, administrative costs, guarantees and borrower insurance, which represents on average 30% of the overall cost of a mortgage. The 2022 usury rates are at the heart of a lively controversy between brokers and the Banque de France. Due to a calculation method unsuited to the current sharp rise in interest rates, the usury threshold is a blocking factor: according to brokers, 45% of financing requests fail due to APR higher than the wear. The publication of the new usury rates for the last quarter of 2022 is eagerly awaited and should indicate a rise in the legal thresholds… which could still prove to be too small to widen access to credit if borrowing rates continue to rise. swell. Repayment period limited to 25 years Another obstacle to the mortgage: the granting rules imposed by the High Council of Financial Stability. Barring exceptions, banks cannot grant loans with a repayment period of more than 25 years. The lengthening of the duration of the loan, however, makes it possible to reduce the monthly payments and to lower the debt ratio, in return for a higher interest rate. Still according to the Crédit Logement Observatory, in August 2022, the average duration of loans was at its highest level, at 243 months, or 20 years and 3 months, compared to 238 months last April. Faced with the continual increase in real estate prices and the increase in required down payment rates, borrowers have no choice but to go into debt over longer and longer periods, but this extension is no longer sufficient and less and less effective as interest rates rise. The only good news in September concerns households who already have a mortgage. Thanks to the Lemoine law, any borrower can change mortgage loan insurance at any time and free of charge, without waiting for the due date. A now simplified approach that saves hundreds or even thousands of euros over the remaining term of a mortgage.