Banking institutions' margins on home loans have been negative since the first quarter of 2022, but came close to balance in the first quarter of 2024, the banking watchdog said in a note on Friday.

The use of data "to track the pricing of home loans shows lending margins, as declared by institutions negative but which recovered in 2023", without however returning to the green, write analysts at the Autorité de contrôle prudentiel et de résolution (ACPR). "This recovery continued in the first quarter of 2024, with margins returning to breakeven for the first time in 2 years", ACPR continues.

Market withdrawal

At its lowest point in the fourth quarter of 2022, the average overall margin, made up of the net margin and ancillary revenues - handling fees, insurance distribution commissions (loan insurance, multi-risk home or guarantee insurance), early repayment indemnities... -were close to -1.5%. This finding may seem counter-intuitive to would-be borrowers, who have noticed a significant rise in the cost of credit over the past two years.

The cause was the sharp rise in refinancing costs for banks, as the European Central Bank (ECB) raised rates to combat inflation, which were not passed on to them in full. To avoid increasing their losses, some banks virtually withdrew from the market. In the absence of a sharper fall in property prices, according to several bankers and brokers, the market is still slowing down.

According to data published a week ago by the Banque de France, the total value of mortgages excluding renegotiations, which had reached a ten-year low in March, had started to rise again in April, before running out of steam in May. The study was commissioned by the Haut Conseil de Stabilité Financière (HCSF - French Financial Stability Board), which, among other things, lays down the rules governing the granting of mortgages.

Analysis of French mortgage trends

In March, the total value of mortgages in France reached an all-time low, according to data recently published by the Banque de France. This marks the lowest figure in ten years, an indicator that highlights a period of noticeable slowdown in the mortgage market. However, this downward trend did not persist for long, as from April onwards, total lending began to pick up. This recovery, albeit modest, was quickly halted in May, suggesting that the increase observed earlier was running out of steam.

This trend in mortgages is particularly significant in the context of the policies put in place by the High Council for Financial Stability (HCSF). Responsible for regulating the conditions under which mortgages are granted in France, the HCSF plays a crucial role in providing a framework for market stability. The data collected and analyzed by the Banque de France was obtained at the request of the HCSF, which closely monitors market fluctuations in order to adjust its recommendations and regulations.

Fluctuations in home loan amounts can be attributed to a number of factors. Firstly, general economic conditions, including interest rates and the economic outlook, have a direct impact on the ability of potential borrowers to obtain loans. In periods of low interest rates, it is generally easier for households to take out mortgages, which may explain the upturn seen in April. However, as soon as conditions become less favorable, or borrowers anticipate a deterioration in the economy, demand can quickly level off or decline.

Furthermore, the rules put in place by the HCSF are designed to prevent the property market from overheating, by regulating lending conditions. These regulations often include strict criteria on loan amounts in relation to borrowers' incomes, and on debt ratios. When these criteria are tightened, there can be a significant drop in demand for mortgages, which is directly reflected in the published figures.

The evolution of these mortgages is also a reflection of how consumers and investors feel about the property market. Economic uncertainties, fluctuating house prices and job prospects can all influence household lending decisions. In May, the stabilization or slight decline observed may therefore signal increased caution on the part of borrowers, or an expectation of better market conditions before committing to new loans.

In short, mortgage lending in France is influenced by a variety of economic, regulatory and psychological factors. Recent Banque de France data, in conjunction with HCSF recommendations, provide a clear picture of current and future trends in the real estate market.

P.L. avec AFP