Real estate credit: the threat of variable rates hangs over France

A threat hangs over the real estate loan. A practice well known to the Anglo-Saxons but much less so to the French. Barely 5% of French banks use variable rates. And if we speak of a “threat”, it is because we readily associate them with the subprime crisis at the end of the 2000s. The transition to variable rates seems to be taking on more and more thickness. Although rising sharply, credit rates remain very low in France (about 2% over 20 years according to the Credit Housing Observatory). An untenable situation for the ECB, regulator of European banks, which would consider imposing the return of variable rates to banks, according to Le Parisien. “We can’t live forever with low rates. We are going to readjust our rates. I understand the direction she (BCE) wants to go“, confirms Thierry Breton, European Commissioner, on LCI this Wednesday (see below).

Contacted by Le Figarothe French Banking Federation (FBF) confirms that “public authorities (European Commission, European Banking Authority, Basel Committee) consider it less risky for banks to grant loans at variable rates rather than at fixed rates since the risk is then carried by the borrowersand shows his opposition. “Our unique fixed-rate model protects borrowers by allowing them to know with certainty the cost of their loan for its entire duration, regardless of changes in the economic environment. Fixed rate loans are granted based on the borrower’s income and not the value of his property. Our model must be preserved», affirms the FBF which recognizes that the French position «is not in the majority in Europe“. A large bank even says it is ready “to resist by continuing to offer only fixed rate loans“.

A precedent that dates back more than 15 years

For its part, a banking source excludes the transition to variable rates. “Such a project is not under discussionentrust to Figaro the banking institution which recalls that the last significant production of loans at variable rates goes back “to the years 2005-2007“. On the other hand, the preservation of the French credit model requires prudent risk management on the part of the banks. It has proven itself but is only sustainable if the discipline necessary for its preservation is respected.“. In other words, the banks must take care to take less risk and, by implication, to make it bear a little more to the borrowers.

Unlike Anglo-Saxon countries, French banks lend at fixed credit rates. This provides mortgage borrowers with protection against soaring inflation. But financial institutions, for their part, lose money on loans because the rates at which they lend to households are lower than those at which they borrow.

Capped variable rates?

Conversely, variable rates could, according to Maël Bernier, of, help to validate files blocked by the wear rate (maximum rate beyond which a bank cannot lend, Editor’s note). “Pure variable rates are unsellable for banks! On the other hand, capped variable rates are a way to circumvent the usury rate and revive the credit marketanalyzes this mortgage expert. Over 20 years, you can borrow at 1.81% (excluding insurance and fees) with a variable rate (against more than 2% at a fixed rate) which will not go beyond 2.8%“.

In other words, these “capped” variable rates will undoubtedly allow households to borrow more to have an additional room. “This solution was an interesting time to circumvent the attrition rate but, financially speaking, it is not any more“, corrects Olivier Lendrevie, president of Cafpi, mortgage broker. In the meantime, the mere word “variable” is likely to give more than one buyer hives. “It will take a lot of education to explain to households that these variable rates have nothing to do with those offered in the United States. or in Spain for example“, advises Maël Bernier.

The share of variable rate loans in new household housing loans in Europe. Photo credit: European Central Bank

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