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what changes on July 1st

WEAR RATE. The Banque de France announces that the usury rate will be raised from July 1st.

[Mise à jour du mercredi 29 juin 2022 à 15h25] Good news for future buyers and borrowers? The Banque de France announced an increase in the attrition rate “by around 15 to 20 basis points, depending on the duration” of the loan from Friday July 1, 2022, in the columns of Le Parisien. As a reminder, the usury rate designates the maximum rate at which a bank can lend money to an individual. It is calculated by the Banque de France each quarter, and reflects the average interest rates charged. Concretely, what should we expect? It all depends on the duration of the loan taken out:

  • For a home loan with a term of 20 or more: the wear rate will reach 2.55% to 2.60%
  • For a loan with a duration of between 10 and 20 years: 2.58%, or even 2.63%.

This decision by the financial institution is not a surprise. It occurs in a context of sharp rise in interest rates, resulting from the global economic context, dominated by inflation, leading to a tightening of the monetary policy of the European Central Bank (ECB) and its American counterpart (Fed). “This maximum rate legislation is made to avoid excessive borrowing rates, and therefore protect borrowers,” argues the Banque de France to the Ile-de-France daily.

Despite the strong demands of professionals in the sector for a stronger increase in the wear rate, Bercy has ruled out this option. Several banking networks and brokers regret a measure deemed “insufficient” and are already seeing a drop in the volume of mortgages granted by banking establishments.

What is the wear rate? Definition

The rate of wear (a term also found in the form “rate of wear”) designates the annual percentage rate of charge (APR) maximal to which banks and other credit institutions can lend money in France. It includes the base interest rate, fees, and borrower insurance premiums. There is a wear rate for each of the different categories of borrowing defined by the Banque de France (fixed-rate home loans with a duration of less than 10 years, cash loans to households and loans for work for an amount less or equal to 3,000 euros, etc.). Set by the Banque de France by increasing the average effective rates charged by financial institutions by a third, the various usury rates are published in the Official Journal at the end of each quarter, and act as a legal threshold not to be exceeded. for the next quarter.

What is the current wear rate?

As indicated above, there is not just one current rate of wear, but several (one for each category of loan defined by the Banque de France). For example, the usury rate applicable on April 1, 2022 for a “fixed-rate mortgage with a term of 20 years or more” is 2.40%. You can find all the updated wear rates on the Banque de France website.

As an individual, it is possible to circumvent the overrun of the wear rate by a lending institution by outsourcing borrower insurance (which represents in particular a large part of the cost of a mortgage) included in the credit offer. Facilitated by the Lagarde law, the fact of choosing borrower insurance from a specialized insurance company, instead of the group contract offered by the bank, can make it possible to lower its loan rate to a level lower than that of the rate of wear.

A change in the number of monthly payments of the loan can also sometimes lead to a drop in its APR, and thus make it possible to circumvent the rate of wear. On the other hand, professionals do not have the right to circumvent the rate of wear, under penalty of risking a prison term of 2 years and a fine of 300,000 euros, according to article L341- 50 of the Consumer Code.

Loan refusal and wear rate, how does it work?

Loan refusals linked to an overrun of the wear rate are therefore often encountered when applying for a mortgage. These refusals concern in particular borrowers who, in the eyes of financial institutions, present risks in terms of reimbursement (seniors, people with a serious medical history, etc.). When the lending institution calculates the total cost of credit for these people, the resulting APR can sometimes be higher than the rate of wear, and the loan offer cannot legally be sent to the applicant.

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