In February 2021, mortgage lending rates fell further, establishing a new historical record. This excellent news for borrowers, however, has important consequences: the cost of insurance plays a very important part in credit and the absence of a home loan margin encourages banks to prevent borrowers from fully exercising their right to free choice of insurance… and therefore to lower its cost. Result: the bill is salty for many profiles.
When loan insurance exceeds the cost of credit:
Still 3 years ago, only senior or at-risk borrowers (those who have suffered or are suffering from a pathology, those who practice high-risk sports, etc.) saw the cost of their insurance exceed that of interest of their mortgage. For the other profiles, the balance was maintained since the insurance weighed on average 30 to 50% of the overall cost of the mortgage.
Today, historically low interest rates have extended this phenomenon to almost all borrower profiles. The fall in interest rates proportionately increases the weight of insurance in the overall cost of credit.
From the age of 40, the cost of insurance systematically exceeds the cost of credit when the borrower is covered by his bank. The only way to get it right is to to play the competition by choosing an insurance external to that of his bank. For senior profiles, if the weight of insurance already exceeded that of credit, today, this one is colossal and weighs over 170% for group insurance and 130% for external insurance.
What consequences for a 40-year-old couple?
Couple 42 years old, executives, borrow 350,000 euros over 25 years to purchase their main residence. Insurance quota: 100% per head.
While in 2018, the weight of insurance was only 74% for 40-year-old profiles, today, with banking group insurance, it exceeds 102%.
Credit rate 2018 -2021: source: Meilleurtaux, You Finance, Loans
Bank insurance rate: source: BAO.fr
Individual insurance rate: source: Magnolia.fr simulations
The perverse effect of low rates:
While everyone is focused on their borrowing rate, the cost of insurance is now more important than ever, if not more, on the remains to be lived by the borrower.
While low interest rates are apparently good news, a perverse effect is being felt:As mortgage loans no longer bring anything to banks, it is urgent for these establishments to look for margin elsewhere. Bingo! These are the insurance products and more particularly the borrower insurance on which they rely everything:
A bank margin on average 50 to 80% on a borrower insurance offer, despite existing competition 2 to 4 times cheaper.
The borrower facing his banker today has almost no room for maneuver to negotiate your loan insurance. To see his loan file accepted, he is systematically (or almost) obliged to cover himself with banking group insurance, at a high price, despite the law. (2010: Lagarde law: the borrower, in the context of a mortgage, has the right to choose the loan insurance he wishes). Fortunately the laws to change loan insurance exist (Hamon law, Bourquin amendment) and many borrowers pass the course. But that’s not enough.
The effect is immediate among brokers: until 2018, Magnolia.fr insured 60% of new loans and 40% of loans resulting from a change of insurance. Today, the trend is reversed: 60% of loan insurance policies sold are from a change in loan insurance and 40% from a new loan.