This year, 220,000 households are locked out of the market due to rapidly rising rates and mortgage protection measures. At Pretto, we believe that real estate must regain its social role. Therefore, we present 2 proposals to help these borrowers regain their purchasing power.
- Our status as a high-volume intermediary platform between borrowers and banks gives us an ideal observatory and a battery of advanced indicators in the mortgage market. real estate loan.
- The situation of rate hikes is unprecedented and this context led us to a specific analysis of the effects on access to credit.
- This increase is compounded by unprecedented regulatory restrictions that are squeezing borrowers, especially the most modest, who are increasingly excluded from financing their loans. real estate project.
- Next to 60,000 files they would no longer be financeable because they exceeded the rate of usury;
- Next to 160,000 the files would no longer be financeable because they exceeded the maximum debt ratio of 35%.
This exclusion mainly affects households with the lowest incomes (30% of households with incomes below €3,000, compared to 13% of households with incomes > €5,000).
We believe that this severe deterioration is a major economic and social problem today.
So this is a real “alert” we’re launching today. But not only. We also want to suggest pragmatic and effective ways to develop regulation so that we do not further exacerbate the ‘real estate gap’ and preserve the social utility of credit.
Restore real estate credit to its social role
The combination of the usury rate and the leverage ratio has a dual effect:
- L’access to assets that allow you to build assetsit is disabled by many modest households, so far very solvent;
- More and more households are forced to remain rentersi.e. take on the growing housing burden: on the other hand, access to property at a fixed rate allows housing costs to be frozen, which is a strong shield against inflation.
The inevitable consequences of the tightening of credit production do not seem to have been taken into account. We think that unprecedented situation that we know requires more expectations. We are therefore sounding the alarm, especially as these effects are likely to intensify.
Proposal No. 1: Modifying the usury rate calculation methodology to bring it closer to market reality and to better protect consumers from real credit risks
The usurious character of the loan should logically depend on the difference between the rate and the average rate charged: if this difference is too large, it means that the borrower’s profile is one of the riskiest compared to the average profile. But while the 10-year OAT, considered the minimum risk rate, has exceeded 2%, given that we could not lend to an individual above 2.4% APR, it seems to lack any economic rationality.
So we consider it the attrition rate must no longer be calculated quarterly, but monthlywith development based on the calculation and the permitted scope of financing.
- The inflationary context will be taken into account more quickly and the time lag between the charged rates and the interest rate will be shortened.
- Finally, the vicious circle associated with the exclusion of less good profiles will be reduced.
A fixed value in basis points, 1 or 2%, will need to be added to this calculation: the gap widened from 25% to 33% around 1990, at a time when rates were close to 10%, a usurious spread of 3 points! (compared to a spread of 0.64 points currently).
Proposal No. 2: Allow an increase in the maximum debt ratio above 35% to finance energy-saving works or the purchase of a highly energy-efficient property
Energy renovation becomes a real challenge for housing. Renovating your home also means saving money in the long run and adding value to your property.
For files that already reach the 35% cap, an increase to 38% would allow up to an additional 8% to be borrowed, i.e. with an average borrowed amount of €200,000, the works budget is €16,000.
For example, this budget would allow – before any aid – to carry out one of the following operations:
- Insulate your attic to save up to 30% on your heating bill.
- Install a heat pump that can save up to €1,000 per year on energy.
The issue of the energy bill is also fundamentally different: knowing it the average cost associated with heating was EUR 1,684 per household in 2020 with a significant disparity (€2,108 for diesel heating, €1,147 for wood heating) the annual bill therefore represents more than one month’s salary at the minimum wage level, i.e. almost 10%, compared to a few% for wealthier households.
By borrowing more (at a low fixed rate over a long period) to finance the energy renovation work, a saving on the bill of around 30% would therefore enable free up 3 more points of disposable income for the most modest households, which today spend almost 10% on heating, thus reducing the risk associated with further indebtedness by up to 38%.
This positive effect on the remaining costs is also all the more important in the current situation, when energy prices have risen sharply in recent months.
Gas prices increased by more than 40% between June 2021 and October 2021, the date of the price freeze. Without the measure, prices would then continue to rise further, by more than 50% until June 2022 according to government estimates.
These proposals would make this possible streamline access to credit and to go back to neutralizing some of the crowding out that we are seeing without risking overheating the market, naturally tempered by the natural rise in rates. However, this would be done without creating additional risk to consumers or the financial system as a whole. If we feel like it duty of public authority In order to anticipate the significant impact that the status quo would have on household purchasing power and the French real estate economy, it is our duty to provide factual elements as well as concrete proposals to this debate.