“Mortgage Loan Wear Rate Rises Again: Good News for Borrowers, but Beware of Rising Inflation”

The usury rate, the maximum threshold at which banks are allowed to lend, will rise again in June 2023. It will rise to 4.68% for a loan over 20 years or more. Good news for borrowers.

According to a notice published on Sunday in the Official Journal, the wear rate will increase to 4.68% for a loan over 20 years and more, from June 1. In April, this threshold stood at 4.52% and in March at 4.24%. Since the beginning of the year, it has increased by an additional 112 basis points (1.12%). For other durations, it will now be necessary to deal with a rate of 4.45% for loans between 10 and 20 years. And a rate of 4.47% for variable rate loans. As for bridging loans, their rate has now reached 4.67%.

A monthly rate reassessment

As a reminder, the wear rate expresses the APR (Global Effective Annual Rate) that banks must not exceed when granting a mortgage. Institutions must fill it in to allow the borrower to compare loan offers. This indicator includes various costs related to obtaining bank financing, including application fees and mortgage loan insurance premiums. Since February 1, 202, the Banque de France has decided to reassess it every month until July 1, 2023.

Faced with the deterioration of monetary conditions

This monthly review is a response to the too slow pace of the quarterly review. It aims to adapt to the rapid and sudden changes in interest rates, due to the deterioration of monetary conditions since the start of the war in Ukraine. Its key advantage is to give applicants for refused credit the possibility of repeating their request more quickly, after one month. Moreover, when this rate of wear increases substantially, this makes it possible to unblock certain files. Good news for borrowers.

Towards an increase in the borrowing rate

At the same time, this continuous progression encourages the banks to adjust the borrowing rates they charge upwards. Thus, their scales exceeded 3% on average in April, all durations combined. The increase continued in May, forcing some households to borrow at more than 3.50%. Many brokers now expect rates at 4% for the summer of 2023 and beyond 4.50% by the end of the year.

Beware of galloping inflation

If inflation continues, however, the banks could consider the mortgage business too unprofitable and refuse to grant loans. It is therefore up to politicians to find the appropriate measures to counter the surge in prices in order to take full advantage of the increase in wear and tear rates. As long as this progresses, the real estate market will do quite well. According to the Crédit Logement/CSA observatory, households have already lost 11 square meters of purchasing power in one year.