The financial authorities limit the duration of a mortgage loan at 25 years, or even 27 years in certain situations. However, banks are starting to offer loans again on durations of up to 30 years. Do they have the right? Is it interesting to get into debt over this long period?
The return of real estate credit over 30 years
Since January 2021, banks have been subject to the rules of the HCSF (High Financial Stability Council) which govern the distribution of real estate loans. These standards are legally imposed since January 2022 ; impossible for them to deviate from it under penalty of administrative sanctions.
Two limits are in place:
The regulator has, however, introduced a margin of flexibility which allows credit institutions to free themselves from the rules: 20% of their production of real estate loans can be granted out of the normintended mainly for the acquisition of the main residence and first-time purchase. This means that banks can grant home loans on their own terms.
Until now, banks did not use all of this margin of flexibility for reasons of complexity of implementation and lack of profitability of new loans. The situation has changed since the appreciation of credit production benefiting from this flexibility is carried out over three rolling quarters and no longer over one quarter, and monetary conditions have stabilized.
Who can borrow over 30 years?
Without going into the complex details of its breakdown, the margin of flexibility which allows banks to distribute unconventional property loans primarily concerns the purchase of the main residence and first-time buyers. Of the 20% granted, only 14.3% is used. The ball is now in the banks’ court to boost the market in a context where credit becomes profitable again.
Extending the loan term allows you to better control the debt ratioespecially when we do not have not enough personal contribution to minimize the use of credit. First-time buyers are the first targets because, with little personal contribution, they must getting into debt for the longest periods to cope with the rise in interest rates for two years and the still high level of real estate prices: by spreading the debt, they reduce their monthly debt and increase their borrowing capacity.
But the operation is more expensive. The longer the term, the higher the interest rate. If we look at the information for borrowing in January 2024, we see that the average rate is around 4.20% over 20 years and of 4.45% over 25 years (excluding property loan insurance and cost of security). Over this 30-year period once again proposed, the rate oscillates between 4.15% and 4,75% according to profiles for the best offers.
If we take the example of a loan of €200,000, here is the cost of interest depending on the duration:
Gross rate depending on duration
Monthly payment
Interest cost
Additional cost*
20 ans – 4,20%
1 233€
95 954€
25 ans – 4,45%
1 106€
131 799€
35 845€
30 ans – 4,75%
1 043€
175 586€
43 787€
*Compared to the previous duration
At the moment, very few banks offer home loans over 30 years. The measure allows them to differentiate themselves from the competition and capture customers over the long term, with a more profitable credit. The most competitive apply a lean differential of 0.10% between the 25-year rate and the 30-year rate to prevent the benefit of extending the repayment term from being obliterated by the cost of credit. The most gourmet ones offer prohibitive rates beyond 5% that it is better to flee.
By getting into debt for longer, young people under 35 can thus access the property and along the length, they will be able to renegotiate the terms of their credit if rates drop significantly, or increase their monthly payments if their income improves. They can also take into consideration that the average holding period for a first property is less than 10 years. Resale allows the credit to be paid off in advance.
The extension of the loan term has another impact: that of increase the cost of borrower insurance, and by extension, the overall cost of credit. To minimize this load, it is appropriate to delegate the contract to an external service provider by putting offers in competition via a property loan insurance comparator.
2024-01-22 07:34:19
#Real #estate #loan #borrow #years #Magnolia.fr
