- Banks

Real estate loans soon hardened?

Banks are worried about new international standards that would force them to be more selective.

Will it be more difficult in the future to subscribe to a mortgage? The new recommendations made by the Basel Committee, a regulator of the global financial system, are worrying French bankers and real estate professionals. This body seeks to reduce the risks associated with loans, causing the subprime crisis in the United States. In December, it launched a new consultation to strengthen the equity that banks must have when granting credit to borrowers with little or no personal contribution. The reasons? In the majority of countries (especially Anglo-Saxon countries), the amount of home loans is calculated according to the value of the property purchased. A loan without personal contribution is, therefore, the price of housing. But if the borrower (or the bank in case of default) resells it at a loss, he cannot fully repay his loan. “It is, therefore, to limit this risk that the Basel Committee wants to impose a sharp increase in the capital reserves of financial institutions,” said Michel Mouillart, professor of economics at Paris-Ouest.

“Our system is healthy and works pretty well” Marie-Anne Barbat-Layani, Executive Director of the French Banking Federation (FBF)

The French system is very different from the Anglo-Saxon model. The amount of the loan is only calculated according to the capacity of repayment of the borrower: its debt ratio must at most represent 33% of its income. “Our system is healthy and works pretty well. The rate of these loans is less than 2%. It is, therefore, paradoxical to want to force us to change our rules, “says Marie-Anne Barbat-Layani, Executive Director of the French Banking Federation (FBF). The mortgage market is doing well. Last year, nearly 130 billion loans (excluding loan redemptions) were granted. And demand remains supported by lower and lower lending rates (2.09% on average in February).

A risk for young people and poor households

If it is adopted, the new standard will be transposed into European law in 2017 and will enter into force surely in 2018. French banks will then have to freeze up to 55% of the amount lent in their own funds, against 15 to 20% currently. Which could be fatal for some borrowers. “First-time buyers with modest incomes and young households will no longer be able to borrow with little or no input,” says Jean-François Buet, president of Fnaim. Which is far from being anecdotal. “About 150,000 of them may no longer have access to mortgage credit, calculates Michel Mouillart. This should also slow down the energy renovation of 100,000 old homes a year. But rental investors will be a little less affected because many of them will be able to increase their contribution. “This tightening will have an impact on the real estate market, especially the new one and on economic growth. “The market is likely to freeze as in 2009. This could lead to lower prices than today,” predicts Jean-Francois Buet. Worried, the Fnaim, the FPI (promoters) and the FFB (individual houses) have just alerted the public authorities on the subject.

Contrary to what has feared a few months ago, French banks should, however, be able to continue lending at a fixed rate. But maybe more in the same conditions. “The capital requirements to finance fixed-rate mortgages that banks have in the portfolio may increase significantly,” worries Marie-Anne Barbat-Layani. This could force them to raise credit rates or simply switch to variable rates, which we do not want. ”

In the long run, the credit market could dry up a bit. “If the set of regulatory tightening measures envisaged was to be confirmed (…), it is certain that banks should restrict their supply of real estate credit,” warns Bruno Deletré, Managing Director of Crédit Foncier. French banks are working with regulators to promote national interests.