In order to prevent systemic risks caused by the creditworthiness of borrowers, the authorities will take measures that could make access to housing loans more difficult.
Strong growth in real estate financing with low rates
If the economic situation is still far from alarming, the real estate debt of the population worries the authorities which monitor the financial stability of France. During a meeting that reassembled the High Council for Financial Stability (HCSF), the Capital lender and the Treasury, the parties discussed the hypothetical risks that the capacity of households that repay loans and their long-term creditworthiness.
Indeed, banking establishments are very active in creating new mortgage loans. In its monthly balance sheets on loans to individuals, the BdF has also highlighted that housing loan outstandings are growing at a higher rate of 6% over one year over the months of May, June and July 2019. The property debt in the process of being repaid by the French amounted to 1,049 billion USD out of a total debt of 1,269 billion in loans to individuals.
With historically low credit rates, demand for low-cost home loans is soaring as banks’ margins take a hit. Households are therefore more likely to go into debt and professionals find themselves earning the small amount of crumbs due to the current borrowing conditions accommodating for customers and supported by the Capital Lender and its monetary policy.
Solvency risk for both individuals and banks
At this stage, the regulators intend to propose concrete measures in the coming months to contain the credit risk. Banks should be encouraged to put in place more restrictive scales for access to credit, in particular by demanding better financial guarantees. In this perspective, profiles seeking funding with limited resources could be refused their file.
Individuals struggling to pay their mortgage and consumer loans can turn to a home loan repurchase transaction. In addition to merging all the receivables into a new monthly payment, the applicant for a grouping of credits can opt for a reduction in their monthly payments in order to find a balanced budget. However, this mechanism requires extending the repayment term of the new loan all in one, which generally increases the overall cost of credit.