With the increase in interest rates from its banking partners, the credit broker VousFinancer fears a complicated quarter for those who have a real estate project.
Since the beginning of the year, all the banks have now increased their rates, by 0.30 points on average, even though the usury rates, ceiling rates beyond which they are not allowed to lend, have not changed, particularly over periods of 20 years and more, leading to the exclusion of more and more potential buyers. The debt ratio is also becoming a major brake, under the effect of the inevitable increase in monthly payments due to this rise. Vousfinancer thus anticipates a complicated quarter for those who have a real estate project, at a time of year when the real estate market is traditionally the most dynamic…
Rate increases of 0.10 to 0.45% at the partner banks of VousFinancer
In April, as anticipated, the upward trend in interest rates continued. Already in March, some banks had sent several rate schedules during the month, under the effect of the sudden rise in the 10-year government borrowing rate, which rose from 0% at the end of December 2021 to more than 1% at the start of April. i.e. a return to its level of April 2017. Most banks, national or regional, raised their rates in April by 0.05 point to 0.45 point for one of them which had already raised its rates by 0 .30 in March, bringing the total increase to 0.75 points! These rate increases in the scales mostly concern all profiles, but in some banks more the less good profiles, with the lowest incomes, to whom we now sometimes offer rates higher than 2% on 20 and 25 years… Reasons given by the banks to justify: a deterioration in refinancing conditions linked to the rise in market rates due “to inflation first, to the end of the central banks’ accommodative pricing policies and to the Ukrainian conflict”.
Thus the average rates offered increase in April to 1.25% over 15 years, 1.45% over 20 years and 1.65% over 25 years. The rates for the best profiles are also rising while still remaining attractive: 0.90% over 15 years, 1% over 20 years and 1.25% over 25 years.
« The 10-year government borrowing rate has returned to its level of April 2017, when banks were lending on average at 1.70% over 20 years, against 1.45% currently. The banks try as much as possible to limit the rise in rates or to make it as gradual as possible, by sending new scales every fortnight for some, with limited increases. However, in this context, the movement is likely to continue in the coming weeks, even though with the current wear rates, the rates displayed on certain scales systematically lead to refusals… “, analyzes Sandrine Allonier, director of studies of Finance you.
The impact on the debt ratio is also beginning to be felt. Given the increase in monthly payments caused by the rise in rates, to borrow for example €300,000 over 20 years, it is necessary to earn €200 net more per month in certain banks to compensate for a rise in rates of 0.50 point and respect the 35% debt threshold.
Increasingly blocking wear rates
A national bank now displays for a couple with €42,000 in annual income, i.e. €3,500 per month for two, and 10% contribution to finance the costs, a rate of 2.40% over 25 years, excluding insurance and excluding costs. That is a rate equivalent to the rate of wear, even though the ancillary costs have not yet been integrated (APR: 3.10% with insurance at 0.30% and a Housing Credit guarantee)! This rate will therefore never be effectively practiced, and will therefore not be included in the calculation of the wear rate for the next quarter, which as a result is likely to rise relatively little.
« 75% of our branches have encountered loan refusals linked to wear and tear rates or debt ratios in recent weeks. The wear rates no longer correspond at all to the reality of the market, because of their method of calculation which generates a lag and inertia: as proof, over 20 years and more, the most widespread credit durations, the rate usury fell by 20 points in one year, dropping from 2.60% to 2.40%, even as credit rates rose by 20 points. In April 2021, we borrowed on average at 1.25% compared to 1.45% currently, with a historically low rate of wear », Analyzes Julie Bachet, Managing Director of Vousfinancer.
6 ways to borrow despite everything…
So what are the solutions to allow future buyers to borrow despite everything? There are a few levers to lower the Annual Effective Annual Rate (APR) which must not exceed the rate of wear, otherwise the credit will be refused. As a reminder, the APR includes the interest rate, administration fees, guarantee fees, insurance fees and brokerage fees. Only the mandatory elements are taken into account in the calculation.
Here are some ways to lower the APR of a loan, but also the monthly payment, insurance included, and thus not exceed 35% indebtedness.
- Put banks in competition or negotiate the credit rate : currently all the banks have not yet raised their credit rates in the same proportions. Thus over 20 years, for €200,000 borrowed by a couple with €42,000 in income, the rates offered range from 1.3 to 2.15% depending on the bank, with a strong impact on the APR which then goes from 2, 06 at 2.90%, with 0.30% insurance and other fees included. In addition, it is possible to negotiate a rate discount of 0.10% by slightly increasing its contribution, or by repatriating savings, if possible.
- Negotiate filing fees : when possible, negotiating bank administration fees can earn valuable APR points. Thus, going from 1000 € to 0 € in the same example, contributes to increasing the APR from 2.20 to 2.15%
- Take out an insurance delegation : as the cost of insurance weighs heavily on the APR via the TAEA (Effective Annual Insurance Rate), taking out insurance delegation can make it possible to lower it significantly. Thus for a loan of €200,000 at 1.45% over 20 years, the APR with group insurance, on initial capital, of 0.30% is 2.20% against 1.81% with delegated insurance, on capital remaining due at 0.15%.
- Reduce the insurance quota : if some borrowers want a very covering insurance at 100% on each head, i.e. 200%, the banks require 100% coverage “only”. Thus with group insurance at 0.30% to 100% on each head, for the same loan of €200,000 over 20 years at 1.40%, the APR comes out at 2.74%, i.e. higher than the wear rate , against 2.20% for the same insurance at 50% on each head. In the event of a significant income gap between the 2 borrowers, it is also possible to insure 100% of the borrower with the highest income, and to a lesser extent the other borrower.
- Or take a supplement : if, however, the borrowers want the best cover, it is possible to insure each of the borrowers at 50% in the bank, which is the minimum required, so as not to exceed the rate of wear, and to set up additional insurance quota in a second optional contract at 50% on each head with the surviving spouse as beneficiary, the cost of which, moreover often lower, is therefore not included in the calculation of the APR, nor in that of the rate of indebtedness.
- Play on guarantees : if the APR is too high due to a tariff increase of one of the 2 borrowers for health reasons, it is possible to cover it only in DC / PTIA only, which lowers the rate of the assurance.
« The additional quota is currently the preferred solution, because it allows the surviving spouse to receive, tax-free, the equivalent of the capital remaining due up to the coverage. He can thus settle the loan or continue to pay half of the monthly payments. This type of contract can also optimize coverage at a lower cost. And as membership is optional, it can be terminated annually, but above all not included in the APR, so it does not enter into the calculation of the debt ratio and is not penalizing for the wear rate concludes Julie Bachet.