In recent months, interest rates have been rising, and inflation is to blame. A large number of files are being blocked because borrowing money is becoming increasingly expensive. This is due to the wear and tear rate set every three months by the Bank of France, which aims to protect individuals against abusive borrowing conditions. Its operation is similar to a ceiling. In other words, it's the maximum rate that a creditor can demand. Currently, the wear and tear rate stands at 3.05% compared to 2.57% previously. This means that no credit can be granted by a bank beyond this wear and tear rate.
Who is affected by the wear and tear rate?
All the loans below are subject to the wear and tear rate:
- fixed-rate mortgages
- variable-rate mortgages
- bank overdrafts
- personal loans
- auto loans
Is it possible to bypass the wear and tear rate?
There is a little trick for individuals. Lenders' wear and tear rate exceedances can be avoided through external borrower insurance. It's important to know that this insurance represents a significant part of the cost of a mortgage.
Finally unlocking the files?
In recent months, it has been observed that the wear and tear rate blocks a large number of mortgage loan applications. Several bankers report stopped files due to this rate. It's important to know that the mortgage rate increases much faster than the wear and tear rate update, and that's the problem.
To calculate the wear and tear rate, the Bank of France takes into account the average rates practiced by banks during the last three months, increased by a third.
However, several banks have no choice but to set a higher rate according to the files due to the rise in interest rates. The more risk they take by lending, the higher the rate. If this rate is higher than the wear and tear rate, then the process is stopped, and the loan applicants concerned cannot obtain their loan.This system provoked the anger of hundreds of real estate brokers who demonstrated last September in front of the Bank of France. Their goal was to obtain a revaluation of this wear and tear rate. Since October 1st, they have been successful, and the wear and tear rate is 3.5% for a loan of 20 years or more.
Summary of wear and tear rates set for different durations
- Loan signed for a period between 10 and 20 years: 3.03% (increase since October 1, 2022).
- Loan signed for a period of 20 years or more: 3.05% (increase since October 1, 2022).
- Loan signed for a period of 10 years or less: 2.60%
- For variable loans: 2.45%
- For bridge loans: 2.99%
The upward revision is good news for borrowers and their purchasing power, but it is still far from the rise in mortgage rates. These are undergoing a significant increase and impacting the real estate projects of credit applicants.