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Why are banks increasingly turning down loans to individuals who want to buy?

The current increase in bank rates is blocking certain projects even when the buyer could pay back. We explain why.

Interest rates at 2.5 or 3% today, where they peaked at less than 1% two years ago. This increase increases the number of candidates for the purchase of real estate. Especially since purchase prices have continued to rise in recent months.

The price of stone up over a year

According to the economic report of October, published by the Regional Council of Notaries of Appeal Court of Rouen, prices have increased by 8% in one year for old houses in Seine-Maritime and 6.6% in Eure. Similar trend for apartments. Even in new, prices rose 5% in Seine-Maritime. And this trend is confirmed in all the departments of Normandy.

“At the moment prices are falling out” weighs Capucine Lesault, notary in Eure and regional communications delegate of the regional council of notaries at the Court of Appeal in Rouen. “It will take a few months before the decline begins. The time especially that the sellers integrate that the value of their property has decreased. Not because the property itself is worth less, but because the buyers’ skills have developed”.

Because in connection with inflation and the energy crisis, banks are more cautious. “Last year, buyers still had the opportunity to borrow everything: the price of their acquisition, but also the cost of acquisition and the cost of guaranteeing the loan” explains Capucine Lesault. “From now on, the banks require a personal contribution to cover these costs, which corresponds to 10% of the purchase price”. An additional difficulty for first-time buyers, who often do not have the necessary funds.

The wear rate, a protective mechanism that has become a barrier for many buyers

Above all, the rate of wear now raises questions. “The interest rate is a rate set by the European Central Bank, beyond which banks may not lend money” explains Capucine Lesault. This mechanism limits the interest that banks can charge and is supposed to protect consumers from the risk of over-indebtedness.

“The problem is that the usurious rate today rises more slowly than the interest rate. But if the interest rate offered by the bank is higher than the usury rate, the file is necessarily rejected. Even for people whose creditworthiness is considered good”.

In a survey conducted last August, the professional association of credit intermediaries, the so-called credit brokers, indicated that 35.8% of loan rejections since January 1 would be motivated by this famous attrition rate: “The rate of attrition has become the major problem for access to finance and it concerns all borrowers, regardless of their age or their project, and therefore we want to warn with the whole profession about the risk of exclusion of an increasing number of buyers, resulting in a blocking of real estate market.”

On September 20, a hundred mortgage brokers even demonstrated in front of the headquarters of the Banque de France, in Paris to ask for a significant increase in the usury rate, as it was otherwise feared that the market would be blocked. A vision contested by the Ministry of Economy and the Banque de France.

As every quarter, on 1eh In October, the attrition rate was reassessed. For a fixed-rate loan with a term of twenty years or more, the interest rate went from 2.29% to 3.05%. An increase which should allow some buyers to see their file finally accepted. Unless bank interest rates continue to rise.

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