Mortgage credit: the hidden threat of low interest rates

While this is good news for the majority of borrowers, low-interest rates and attrition rates, however, penalize a portion of households with limited budgets.

While this is good news for the majority of borrowers, low-interest rates and attrition rates, however, penalize a portion of households with limited budgets.

Low rates, a bargain for the better-off and average incomes

Low rates, a bargain for the better-off and average incomes

It is a paradox to which the French do not seem to pay attention, hidden by the promise to borrow at a lower cost. However, the interest rates for real estate loans, which are steadily decreasing over the months, pose a real problem. And the trend remains the same as low rates continue to reach historical levels never seen before. In February 2019, the average credit rate was 1.44% for all durations according to the housing observatory.

If the drainage of the cost of the loan is a great opportunity to obtain a mortgage at the best rate, it is necessary to define the eligible profiles. In this case, it is usually households with sufficient financial resources that can negotiate to benefit from a rate close to the lowest threshold. The bank’s professionals do not hesitate to make confessions in terms of conditions in order to succeed in retaining this type of clientele by granting advantageous credits. If they reduce considerably the margin gained on the present moment, the home loan is, on the other hand, a bet on the future where the banks collect the gains in the long term by selling ancillary products.

Impaired access to credit for limited revenues due to attrition rates

Impaired access to credit for limited revenues due to attrition rates

Now, a portion of low-income households can still suffer historically low rates, especially those who are at the limit to obtain a financing agreement. And a refusal of mortgage is not necessarily due to the will of the bank, but because of the low rates of wear. In concrete terms, when a credit institution makes a loan offer, it can not offer an interest rate higher than the usury rate published by the bank. This indicator is intended to protect consumers against abusive business proposals.

In a case where the threshold of wear is exceeded, the lender finds itself without a solution to finance the request. Knowing that the rate increases proportionally with the level of risk, it is the households with limited resources that pay the price. And the rates of wear renewed every three months by the bank are still down in the last quarter. In Q2 2019, the usury rate for a fixed-rate mortgage is 2.73% for less than 10 years, a decrease of 0.06% compared to Q1. For a repayment term of between 10 years and 20 years, the rate reached 2.77% in Q2 against 2.83% in Q1. The same goes for loans over 20 years where the ceiling is 2.96% in T2 for 3.01% in T1.

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