Fall in usury rates: bad news for the most fragile borrowers

Bad news: the usury rates for the 2nd quarter of 2021, the maximum rate beyond which a bank is not allowed to lend, are falling, especially over terms of 20 years and more, the most common. This decline, a consequence of the rate cuts observed in January-February, could exclude the most fragile borrowers in the coming months, especially in the event of a rise in mortgage rates. Explanations.

The usury rate, a ceiling rate supposed to protect borrowers …

In order to protect borrowers and prohibit the granting of loans at “non-market” rate conditions, there is a “usury rate” beyond which it is prohibited for an establishment to lend. Each quarter, the Banque de France collects from a large sample of credit institutions the average effective rates charged for the different categories of loans. These rates, increased by a margin of one third, establish the corresponding wear thresholds, published in the Official Journal at the end of each quarter for the following quarter. Note: it is the annual percentage rate of charge (APR) of the loan which must not exceed the usury rate, thus including the nominal rate but also the administration fees, brokerage fees, cost of insurance and guarantees. compulsory … (article R. 314-11 of the consumer code).

Wear rates down for the 2nd quarter of 2021

Bad news for borrowers: after rising slightly in Q1 2021 for loans with terms of less than 10 years (+ 15 basis points) and paused on for loans 20 years and over, usury rates are down again for the 2nd quarter. This is the consequence of the drop in the scales of most banks observed in January and February, despite the few recent rate hikes practiced by some banks in March. Since the end of 2020, rates have returned to their historically low level at the end of 2019 … As banks all seek to finance the best profiles – the least risky – interbank competition is strong. They thus benefit from very attractive rates and even from rate discounts which are again at their lowest and have repercussions on the wear rates..

A risk of exclusion of certain borrowers, in the event of a rise in rates, but not only …

If the principle of a ceiling rate is theoretically favorable to the consumer, in the current context marked by a risk of a rise in rates in the short or medium term (and already initiated in isolation in some banks), its calculation poses a problem:There is a 3-month gap between the average rates used to determine usury, and the terms offered by the banks and that’s the problem. So lhe mortgage usury rate fell further for the 2th quarter, 0.07% on loans 10 years and more while some banks are currently increasing their rates from 0.10 to 0.20% on average. For the moment, they are few in number, but if the rates go up more generally, there is a risk of a scissor effect and exclusion from the credit of certain borrowers whose rate will exceed that of usury ” analysis Julie Bachet, Managing Director of Vousfinancer.

In addition, the usury rates are too low to take into account the diversity of borrower profiles. For example, over 20 years, depending on income, the nominal rate offered by a bank varies from 1.15 to 2% over 25 years depending on income, with insurance rates varying from 0.26% for those under. 30 years at 0.53% for those over 50, plus administration fees of up to € 900 … Given these large rate differentials, some borrowers may get quotes above the usury rate. Certain categories of borrowers are likely to be further penalized by the usury rate. These are the most risky borrowers in terms of health (senior, aggravated risks), or fragile borrowers who are advised to take out 200% insurance or take out job loss insurance, the rate of which could more frequently exceed the usury threshold because of the very important weight of insurance in the APR. Modest borrowers can also be further impacted due to interest rate differentials charged by banks depending on income and contribution.