Real estate credit: new rules for borrowers

The Ministry of the Economy and the Bank of France decided on Monday to adjust certain rules governing real estate credit.

Grouped together within the High Financial Stability Council, the two organizations hope to revive the market.

Among the new features: an extension of the loan term which could go up to 27 years, compared to 25 currently.

Professionals in the sector have been asking for changes for weeks, Bercy and the Banque de France have responded to them. Monday, December 4, the Ministry of the Economy and the Bank of France, grouped within the High Council for Financial Stability (HCSF), announced that the rules governing real estate credit would be adjusted marginally. A decision taken in the face of “certain operational difficulties”, noted in particular by banks, detailed the organization in a press release. Faced with this situation, the HCSF has decided to take measures for borrowers.

27-year loan and bridging loans

First measure announced: an exemption from the maximum borrowing duration limit. Currently set at 25 years, it could go up to 27 years provided that the renovation work constitutes more than 10% of the amount of the total credit transaction. Furthermore, the HCSF decided “to authorize credit institutions to exclude the interest charge associated with bridging loans“ in the calculation of the effort rate, that is to say the total amount of expenses linked to housing compared to income, left at 35%. This measure is, however, accompanied by a brake with an amount of the bridging loan which must not exceed 80% of the value of the property sold.

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Finally, banks will have more flexibility to deploy their quota of exceptions to the rules for granting credit, maintained at 20% of applications accepted. They may occasionally exceed this limit over a quarter if they manage to maintain the 20% limit by counting the following two quarters. These three measures will be the subject of a publication of a decree by the Minister of the Economy within a week or 10 days and will be applied as soon as it is published, the press release further specifies.

The HCSF also declared itself in favor of an agreement to place a second level examination of refused credits. The idea was launched by the governor of the Bank of France, François Villeroy de Galhau, before being taken up by Bruno Le Maire. The objective of the measure would be to “further streamline relations with borrowers, whether by giving more explanations when a loan is refused, or possibly in the event that the borrower is solvent, to be able to carry out a re-examination under new granting conditions credit”, according to a source close to the High Council at AFP. These measures “transitory and temporary” could apply at the beginning of February 2024 and these second-level examinations would be carried out on a case-by-case basis at the request of the loan applicant.

Criticisms and expectations

With these announcements, the HCSF hopes to restart the production of real estate loans, which has fallen below 10 billion euros per month since August, according to the Banque de France, unheard of for more than seven years. But the measures were received with freshness by professionals in the sector. The French Banking Federation has taken note of the “adjustments to HCSF standards announced today. The banking profession reaffirms its mobilization for the healthy financing of the French economy, and its values ​​used on a daily basis, in times of crisis and in transition phases.”

For its part, the specialist in real estate credit and credit consolidation Meilleur Taux, regretted the announcement of “four minimal decisions”. “It is not with these announcements that we are going to breathe new life into the real estate market. The table has not been turned and it is really a shame that the only effective measure that would have been to decide on a moratorium on HCSF rules (which, let us remember, date from the beginning of 2020 and became absolute rules only in January 2022) thus putting an end to an unfair situation were not retained”, denounced Maël Bernier, communications director and spokesperson for the organization, in a press release.

“There is, moreover, a small form of hypocrisy in suggesting that it is the banks that do not want to lend when it is precisely because they apply the rules that they are required to apply that ‘they no longer lend’, she also castigated.