Real estate: who can still borrow at the end of 2022?
In recent months, the rate of attrition is the subject that constantly comes up when it comes to real estate. Will its upcoming increase to October 1 be sufficient to avoid the shovel refusals suffered by loan candidates? The real estate market is shaken up, both new and old, which further removes the prospect of a France of owners. Lagging wear rates The wear rates on October 1, 2022 will automatically increase according to the calculation method implemented since March 2016. They will be published by September 30 at the latest. Defined each quarter by the Banque de France (BdF) on the basis of the average APR, then increased by a third, the usury rates correspond to the rates that the banks must not exceed over the period concerned when granting loans. a home loan. This maximum APR includes all the costs required by the lender to grant the financing: loan interest represented by the nominal rate, the guarantee (mortgage, privilege of the lender of money or bank guarantee), administrative costs, insurance borrower whose cost represents on average 30% of the total cost, any commissions from the broker. Friday, September 16, François Villeroy de Galhau, the governor of the BdF, indicated that on October 1, the famous wear rates would be revised by “applying the existing rules”, in favor of a “well proportioned” increase. The calculation methodology used unfortunately leads to a lag in usury rates compared to interest rates which have been constantly rising since March 2022. Despite the incessant calls from brokers and banks, the financial authorities remain deaf to any reform of the wear, even temporarily. However, the usury regulations authorize the Ministry of the Economy, on a reasoned proposal from the Governor of the BdF, to derogate from the calculation rule and to put in place transitional measures in the event of an exceptionally large variation in the cost bank resources, for a period not exceeding eight consecutive months (article L.314-8 of the Monetary and Financial Code). The brokers’ demonstration in front of the BdF on Tuesday 20 September barely helped to ease tensions. Inaccessible real estate credit Credit institutions refinance at high rates due to the monetary context and central bank policy. The ECB’s rate hike twice, on July 27 and September 8, has increased the cost of money, forcing banks to revise their rate schedules accordingly, and to turn off the credit tap… or to lending at a loss to continue making home ownership possible. As a result, nearly one file in two is recalibrated by this wear and tear mechanism. Even creditworthy households are being held back, not by rising borrowing rates, but by the usury glass ceiling that leaves no room to add all the costs of obtaining finance. A preposterous situation where real estate credit remains cheap, but out of reach. Markets for new and old properties in full mutation This blocking of credit, linked more to the impasse in usury rates than to the rise in interest rates, is concomitant with another obstacle for households: real estate prices. Even if the rise in values is slowing down, the increase remains marked in the old sector, at nearly 7% over one year in the second quarter of 2022 (Notaires-Insee index). House prices are rising faster than those of apartments, at 8.4% over one year against 4.5%, a phenomenon observed since the start of the health crisis. The second trimester is a long way off now; the Notaries’ index, based on actual transactions, is several months behind market trends. It does not fully capture the effects of soaring energy prices, drifting inflation and restrictions on access to credit. Borrowing becomes all the more difficult as you have to take on more debt to buy your home. In the new, the problem grows with soaring construction costs. Many promoters stop their operations for economic reasons: between the time when they have assessed the costs and the call for tenders, prices soar. Outside the Paris region, the prices of new housing soared (+6.8% over one year), while housing reservations fell sharply (-24.3%). In the former, the rise in borrowing rates should cause prices to adjust downwards where they are highest. It is difficult to say when this development will take place, given the inertia of sellers in wanting to give in below their claims. If prices remain on an upward trend, many households with purchase intentions will have to remain tenants, which will cause low mobility on the rental market and a drop in the supply of housing. We must also take into account the segment of thermal sieves (DPE classified F or G) whose rent freeze has been in place since August 24, 2022. Financially unable to renovate their property, many landlords will prefer to sell, sometimes at a loss, this which will generate and is already generating buying opportunities.