New standoff in perspective on real estate credit

Currently, to combat over-indebtedness, banks are not allowed to lend money if monthly payments exceed 35% of income, nor for a period of more than 25 years.

They can deviate from these criteria in 20% of cases, provided that this primarily concerns main residences and targets, in almost a third of cases, first-time buyers.

But while activity in the real estate sector is falling, some do not hesitate to speak of a crisis.

“There is no one intellectually who can endorse and find it logical that we keep in 2023, a period with historically high rates and historically low transactions, the same credit conditions as in 2019, when rates were historically low and the historically high volume of transactions", complains to AFP Bérengère Dubus, general secretary of the UIC, the main union of real estate loan brokers whose activity is directly linked to the number of transactions.

After a post-Covid buying frenzy and a record 2021, volume has fallen sharply.

In July, 10,1 billion euros of real estate loans, excluding renegotiation, were granted, the lowest since April 2016 and almost half as much as in July 2022, according to the Banque de France.

As for reservations for new housing with developers, they fell by almost 40% year-on-year in the second quarter, to 18.000.

In addition to higher interest rates, which rose on average from 1,06% in December 2021 to 3,63% in August 2023, buyers are faced with greater reluctance from banks which require increasingly large contributions.

Letter from parliamentarians

Until now, the governor of the Banque de France François Villeroy de Galhau has partly resisted the attacks from those who are calling for a relaxation of borrowing conditions, referring to "normalization".

“However, it is now desirable that the production of real estate loans stabilizes and then gradually resumes,” he recently told AFP. While immediately qualifying: “Artificially reviving the sector by over-indebting borrowers would be a dangerous solution.”

Several presidents of Assembly committees as well as the general budget rapporteur Jean-René Cazenave increased the pressure by pleading, in a letter addressed to Bercy, to loosen the constraints.

According to MP Sacha Houlié (Renaissance), interviewed on Franceinfo on Sunday, Bruno Le Maire "said to study this hypothesis".

“We are extremely attentive to the dynamics of production of real estate loans in France,” underlined Bercy.

During its last quarterly meeting, the High Financial Stability Council (HCSF), which brings together, among others, the Ministry of the Economy and the Bank of France, granted a small gesture by increasing the share of credits from 4% to 6% that a bank can grant freely without having to respect any criteria.

This relaxation is far from enough, according to real estate professionals and banks. “It was a cold shower,” remembers Ms. Dubus, specifying that the professionals hoped for much more.

Tuesday on Sud Radio, the Minister of Housing, Patrice Vergriete, asked to go further in the margin of appreciation left to banks for files that could deviate from the HCSF criteria. He also proposed “better credit conditions if (one) buys to rent”.

The UIC, for its part, makes three proposals: remind banks that regulated loans, such as zero-interest loans, must be considered as a contribution; allow loan terms greater than 25 years for those under 30; and authorize the return to a method of calculating the debt ratio that is more favorable to rental investors.

Until 2019, banks were able to lend more widely since they could consider that the credit weight of a rental investment was offset by the rent received.

Illustrative image of the article via Depositphotos.com.