Bercy gives the green light to a major overhaul of the wear rate calculation

Bercy has decided, according to our information, to agree to change the method of calculating the depreciation rate taking into account “Exceptional circumstances about the rapid rise in interest rates in the market in recent weeks, especially in recent days. We remind you that the usurious rate corresponds to the maximum legal rate that credit institutions are entitled to charge when providing you with a loan. This change, allowed by law, aims to take better account of accelerating interest rates, while maintaining a fair balance between borrower protection and access to credit. It will come into force when calculating the new wear factor from July 1.

Thus, rising interest rates will eliminate the last reluctance to revise the interest rate, the demand of credit professionals, as mortgage rates reached their lowest point in June 2021 (average rate of 1.05%, all terms combined).

Since then, rates have risen slowly, accelerating sharply in April, especially in recent weeks. According to the latest data from the Crédit Logement Observatory, the average rate (excluding insurance) was 1.38% at the end of April, more or less its level in April 2019. This average has even risen to 1.49% in 25 years.

The problem of lag

The problem is not so much the absolute level of the mortgage rate – it is still much lower than inflation – as its growth rate, which is much higher than expected. However, this rapid progress – the ten-year OAT rate, which is a benchmark for mortgage rates, now well fixed above the 2.30% threshold – undermines the interest rate mechanism established by law and revised quarterly by the Bank of France to protect consumers from excessive credit for abusers. rates.

In fact, this depreciation rate is calculated every three months on the basis of the average interest rates on loans granted in the previous quarter, increased by one third. Unlike the rates used by Crédit Logement, the depreciation rate is expressed in annual amounts (annual percentage), ie it also includes additional costs such as borrower’s insurance (mandatory for a mortgage) or administrative fees.

However, given the quarterly lag, the last of the usury fell slightly on April 1 to settle, for example, at 2.40% for a loan of 20 years or more. This is barely ten basis points more than the ten-year OAT, even if banks continue to refinance at zero rate at the European Central Bank, which, however, is expected to fall to 25 basis points in July. But banks must also bear the costs of risk, distribution costs and management fees.

zero fields

“Our margin is zero, even negative,” – the source in bank reports. Some banks are already shutting down production, and players who do not have access to refinancing or central bank deposits, like some online banks, have pressed the brakes. In fact, due to competition, as well as interest rate restrictions, banks cannot easily transfer the increase in the cost of refinancing to the pricing of their loans.

In practice, low real estate prices, which are rising very fast, and the level of depreciation, which also remains low, given the time lag inherent in the calculation method, create a scissors effect that begins to exclude certain households that first-time or most modest buyers from access to finance . Indeed, their files are too easy to touch or exceed the ceiling by 2.40%, taking into account all costs, including the fee charged by mortgage brokers.

From here you need to check the device. However, the “big night” of the depreciation rate, as required by some professionals, with the idea, for example, to exclude the borrower’s insurance from the calculation of annual income, we are not talking. To do so, this would mean a legislative change that is too risky for a relative majority. “If parliamentarians could introduce a 0% mortgage, they would be happy to do so!” »jokes the banker.

Adjustments are more political than technical

Therefore, it was decided to change the method of calculation, the possibility provided by law, in this case “Exceptional circumstances”. And the recent rise in interest rates, which no one really expected, can reasonably be considered an exceptional circumstance.

If technical measures have not yet been taken, according to a source close to Bercy, the idea is to give more weight to rates observed at the end of the previous quarter rather than the beginning of the quarter. Moreover, the bid observed at time t actually reflects the price scale set two to three months before the received file is actually published. This, according to the banker, “To stick more to the reality of betting.”

While at the technical level this calculation reform does not cause serious technical difficulties, at the more political level the issue remains a delicate one. Even if the government has never shown a genuine love for real estate, it cannot afford a bad trial by excluding some French people from home ownership (even if banks usually accuse them of turning off the tap). Moreover, in the period of inflation, property remains an effective means for households to secure the cost of housing in the coming years (and this does not apply to rent). And, unlike in 2019, the labor market is quite good, which increases the appetite of households to stone.

Conversely, Bercy does not want to show too much depreciation, which risks sanctifying the period of high inflation in the coming months, and this is in the midst of the debate on purchasing power. Modification of the method of calculating the rate of wear can be presented as a simple technical measure: it will be the result of very political arbitration.