HCSF Upholds Mortgage Credit Rules Amidst Controversy and Economic Shifts

HCSF Upholds Mortgage Credit Rules Amidst Controversy and Economic Shifts

High Council for Financial Stability Maintains Mortgage Credit Rules

The High Council for Financial Stability (HCSF), inclusive of the Minister of Economy and the Governor of the Bank of France, has resolved to uphold the existing rules for the granting of mortgage credit. Despite the flexibility that the current guidelines offer, banks are yet to fully exploit this leeway, according to the HCSF. The council further suggests that banks can augment their credit offerings while observing the existing regulations.

Existing Guidelines: A Safeguard Against Over-Indebtedness

In a bid to combat over-indebtedness, banks are restrained from extending loans if the monthly repayments account for more than 35% of income or for durations exceeding 25 years. However, these rules are not absolute, with banks having the liberty to deviate in 20% of the cases. This exception is, however, primarily reserved for main residences and is targeted at first-time buyers in nearly a third of the cases.

Usage of the 20% Deviation

The HCSF reports that banks only make use of the deviation in 13.8% of the cases. The exceptions for purchases other than a main residence, which are supposed to represent 6% of the total credits extended, only make up 2.4%. This underutilization of the provision for deviation reveals that banks have room to expand their credit offerings while still adhering to the rules.

Declining Transactions and Interest Rate Adjustments

The number of mortgage credit transactions has been on a downward trend. A source close to the HCSF attributes this decrease to the market adjusting to new interest rate conditions. Interest rates have surged from an average of 1.06% in December 2021 to 3.63% in August 2023. This adjustment, rather than the introduction and revamping of the rules in force since 2019, is seen as the primary cause of the decline in real estate activity.

Controversy Surrounding the Rules

For months, banks, brokers, and players in the real estate sector have been at loggerheads with these rules as the number of transactions continues to drop. They place the blame on the Bank of France, whose governor is one of the leading proponents for the maintenance of the existing rules. Several chairmen of the National Assembly commissions and the general rapporteur of the budget have added to the pressure by advocating, in a letter to Bercy, for the easing of the constraints. Deputy Sacha Houlié (Renaissance), in an interview on Franceinfo, disclosed that Bruno Le Maire was “studying this hypothesis”.