Home loan: can we do without borrower insurance in 2022?

November 2022 mortgage: rates at their highest for 7 years

The race ahead of mortgage interest rates continues. For the first time since the start of 2016, the lending rates granted in October rose above 2% according to the latest data from the Observatoire Crédit Logement/CSA. They have doubled in one year, a sign of a troubled monetary context. Added to this very marked increase, which will intensify, is the problem of wear and tear, these two factors combined causing a fall in the production of loans. Average rate above 2% In October 2022, the average rate for all terms combined stood at 2.05%, compared to 1.88% the previous month (excluding borrower insurance and cost of security). The increase is marked, comparable to that observed last July. This rate is higher than that observed in the first quarter of 2016 (2.01%), a period when the slow decline in interest rates began. Here is the detail of the rates by duration, in comparison with the values ​​observed since October 2020: Rate over 15 years Rate over 20 years Rate over 25 years Average rate October 2020 1.02% 1.16% 1.42% 1.21% December 2020 0.97% 1.10% 1.35% 1.17% October 2021 0.84% ​​0.98% 1.14% 1.04% December 2021 0.86% 0.99% 1.13% 1 .06% October 2022 1.92% 2.06% 2.17% 2.05% source Observatoire Crédit Logement/CSA The increase in rates in August and September 2022 had been curbed by the low revaluation of usury rates for the third trimester. The rise in the usury rate on 1 October encouraged the banks to nibble more points and raise their scales, without doing so as a consequence of the monetary trend, still because of the brake operated by usury. Mortgage loans are no longer profitable The profitability of new loans, i.e. the margin that banks can generate by lending to individuals, has deteriorated rapidly since July 2022, following the decision of the Central Bank European Union to raise its key rates in an attempt to curb freewheeling inflation. The refinancing rate, which is the cost of money for commercial banks with the European institution, has gone from 0% (until July 2022) to 2% since October 27. We see in the table above that the average rate over 20 years has more than doubled since December 2021. This unprecedented rise is forcing borrowers to go into debt for longer periods. In October 2022, the average duration of home loans was 244 months, compared to 211 months in the first quarter of 2016, when rates were at the same level. According to the bank scales received by the brokers, the rates for November 2022 are close to usury, oscillating between 2.20% and 2.35% over 20 years, and between 2.35% and 2.50% over 25 years . On these most common maturities, the usury rate is set at 3.05% for the last quarter of 2022. We could soon have rates over 3%, the monetary policy of the European Central Bank becoming less and less accommodative as long as inflation has not returned to a level consistent with the common rule (2%). We have to go back to 2013 to find similar refinancing costs. At the time, mortgage lending rates were around 3.50% and the wear rate was over 5%. While real estate loans to individuals are the loss leader of banks, today they are no longer profitable, which encourages certain establishments to close the floodgates pending regulation of the maximum legal rates more in phase with the ground. Usury blocks the real estate market The rise in borrowing rates would not be problematic if it did not highlight the inadequacy of usury rates. By virtue of a calculation methodology incapable of taking into account a sharp rise in interest rates, usury is under fire from brokers, also from banks who have recently put forward the idea for accelerate the increase in usury in 2023 to base the calculation on the loan offers and not on the credits actually granted. Are we heading towards a reform of wear rates in 2023? It would be legitimate to believe in it, following the recent statement on BFM Business by Housing Minister Olivier Klein, who said he was in favor of a calculation of wear and tear on a shorter basis. As a reminder, the Minister of the Economy, on a reasoned proposal from the Banque de France, has legal means to put in place transitional measures in terms of usury in the event of an exceptional variation in the cost of bank resources, and this, over a period of up to eight consecutive months (Article L.313-5 of the Monetary and Financial Code and Article L.314-8 of the Consumer Code). Obtaining a mortgage in 2023 will be an insurmountable challenge if the financial authorities do not initiate usury reform quickly. Over one year, the production of home loans contracted by 10.7% in terms of amount and by 12.9% in number of loans.



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