the number of loans decreased, the most modest ones pushed from the market

Slowly but surely, the mortgage market has been deteriorating for months. According to figures from the Crédit Logement / CSA Observatory, the production of credit for the purchase of a house showed a further decrease in the second quarter, emphasizing the trend observed in the first quarter. On a year-on-year basis, the amount of loans granted fell by 12.5%​​​​between April and June, while the number of loans fell by 9%.

Within half a year, the fall in production reached 5.6% in value and 7.3% in volume, with the market for old buildings more affected than the market for new buildings. Another observation: the solvency indicator, as calculated by Crédit Logement, a banking organization that manages half of the sureties of mortgage loans, shows signs of weakness; the increase in the average down payment is only partially offset by the increase in the average amount of a loan (+8% in the first half) in higher costs.

However, the Prudential Supervisory and Resolution Authority (ACPR) points out that the risk remains well under control, thanks to a policy of granting that is based on the solvency of households (and not on the value of the property) and is largely provided by a fixed. rate (and protected by insurance and sureties).

A rapid decline in production

“We have a market that has fallen into decline mode”, summarizes economist Michel Mouillart, university professor and scientific adviser to the Observatory. And the prospects are hardly encouraging for the second half, according to Crédit Logement. According to the economic scenario of the Banque de France in June, which predicted an average credit rate of 1.55% in 2022 (ie an average rate of 1.9% at the end of the year), credit production (accepted as supply) may fall by 15. % this year to 170 billion euros, compared to 200 billion euros in 2021, ie return to the production level of 2018 and 2020.

“It is easier to attribute the decrease in production to the increase in mortgage rates. But, let’s be careful because the rates have really increased limply about inflation or an increase in the OAT rate”, warns Michel Mouillart. According to the Observatory, the average rate (excluding insurance) stood at 1.4% in the second quarter, against 1.12% in the previous quarter. In June, this average rate reached 1.52%, confirming an acceleration that began since March. This increase is concerned in a relatively uniform way to all types of customers, and all credit durations.

This average rate can reach 1.9% at the end of the year, or even 2.25% in the more difficult back-to-school scenario in terms of inflation. Mortgage lenders noticed in July that even more rates were offered at more than 2%! A bank now offers at least one rate regardless of the borrower’s profile, his income or the duration of the loan: 2.10% for 15, 20 or 25 years! », reports for example the broker VousFinancer.

Collapsed margins

Since last December, the average rates, according to Crédit Logement, have increased by 42 basis points, but they are four times lower than inflation, and even five times lower than the ten-year OAT, which serves as a real estate credit benchmark. “This increase in rates is indeed fast but it is not in the brutality of the increase that one would expect if you look at inflation or market rates”, said Michel Mouillart. Clearly, the banks do not fully go through the rise in market rates, and “We have never seen credit rates so low relative to inflation”, lined the economist. In fact, real estate credit still shows negative real interest rates.

It has even become a source of concern for the ACPR, which has always sought to avoid unprofitable banking activities. Because, at the moment, banks are clearly selling loans at a loss. According to the quarterly survey of the European Central Bank (ECB), the margins of French banks collapsed in the second quarter, becoming negative by 67 basis points, when they were already in the red (-25 points in basis) in the first trimester.

This is even an exception in Europe where the average margins on real estate loans in the euro zone stabilized from one quarter to another (-10 basis points all the same, against -9 fundamental points in the first quarter), which confirms a greater ability of non-French European banks to support the increase in refinancing costs. The existence in France of a relatively low interest rate (including insurance and administration fees) – which was raised on July 1 to 2.57% for a loan of more than 20 years, against 2 .4% previously – undoubtedly partly explains this moderate on the part of the banks.

At the same time, the duration of loans continues to lengthen, loans of more than 25 years represent more than half of production (51% and 65% for loans of 20 years). In June, the average duration of a loan is now spread over 240 months (20 years), so that the extension of the duration almost completely compensates for the increase in rates. This is also a result of the recommendations of the High Council for Financial Stability (HCSF), which sets the maximum rate of effort of a household to borrow at 35% (except for exceptions for first-time buyers) .

Participating clients from the market

The drop in production found another explanation, according to Michel Mouillart. “Production falls because households cannot enter the market”, he believed. In fact, the nature of the market has changed dramatically. “Clients who present themselves in today’s market have higher profits”said the expert.

According to the Observatory, the average income increased by 4.7% between 2021 and 2022, which is a greater increase than the purchasing power. At the same time, borrowers make larger transactions in real estate, which explains the almost 10% increase in the average amount of a loan. “We rarely see such an evolution”advocated by Michel Mouillart.

With real estate prices not weakening (yet), surfaces purchased are increasing, and above all, a personal contribution that is increasing “like never before” – almost 17% from a year to the next”, this is a mess. in the real estate credit market that is now taking place in favor of the most privileged clients.

On the side of brokers, it is the interest rate, which can be very low in times of rising rates, which is put forward to explain the exclusion of the most modest customers. This is undoubtedly an observation to be qualified because the banks always seek to preserve their customers by playing other levers of the effective rate, such as insurance… or the commissions paid to the mediators. Several networks, such as Société Générale, have also suspended their commercial relations with brokers.

The Banque de France went ahead and signed

The question of the exclusion of low-income households from the market was firmly rejected by the Banque de France, which put forward its own statistics to justify both the HCSF restrictions and its decision not to change, in June, the calculation mode of the wear rate. At the beginning of July, the Banque de France thus lined a rate of growth in the production of loans of 6.8% in May to 27 billion euros, ie “the highest level reached in the last five years”.

The founder of the online broker Pretto, Pierre Chapon, has his explanation for this apparent difference between the figures of the Banque de la France and the Crédit Logement, and more, the view of the field. “The figures from the Banque de France correspond to the actual release of funds from a loan that could have been granted three or four months before, and therefore under completely different market conditions”, explains this professionally. And for him, the attrition rate cap is fully effective from next September in official statistics. The rate of wear and tear is actually calculated, every quarter, on the average rate of loans recorded in the previous quarter, increased by a third. So a significant lag effect when rates rise faster and faster every month.

HCSF inhibitions also play their part in this reduced production. Since January 1, they have become mandatory for banks. However, according to the ACPR, almost 15% of loan production, at the end of December 2021, does not comply with the rules of the HCSF (compared to 23.8% at the beginning of 2021). 15% of production that must be complied with, or withdrawn from the market.

“Production is decreasing because, perhaps, the banks now respect these recommendations, which reduces the possibilities on the part of clients to enter the market, especially those with the least personal contribution”, suggests Michel Mouillart. With the combination of all these factors (rates, HCSF, wear rate, high real estate prices, etc.), low-income customers no longer have a place in the mortgage market.

A credit professional is much worse: “The Banque de France intends to break the market, especially to lower prices in the big cities”. A test of purpose that also began to seriously disturb the governor of the Banque de France, François Villeroy de Galhau.