good or bad idea?

Among the Renaissance deputies, bills multiply to try to revive the real estate market. The latest, from Damien Adam, who is fighting for the transfer of a loan to be made compulsory. We explain to you what this consists of and why it is unfortunately not a good idea.

Just imagine that just like your phone number, which you can transfer from one operator to another to save a few euros on your plan every month, you can do the same for your property loan, from one purchase to another. It already exists and has a name, the marketability of the loan. Missing since 2016, this measure – until now at the discretion of the banks – has been brought back at the head of the majority MP Damien Adam, who is campaigning for it to become mandatory to streamline the property market.

The false good idea of transferability

But what does this actually consist of? We leave the microphone to Damien Adam, or rather we quote his bill presented in the National Assembly: “In order to counteract blockage of the real estate market and simplify the procedures, the solution supported by this bill is to generalize the so-called “portability” clause for the real estate loan. Today, this clause can optionally be introduced in the home loan offer to ensure that the loan conditions can be maintained when buying a new property after the sale of the previous one.. Portability will thus enable owners who wish to acquire a new property to continue use the credit taken out when purchasing their current property if that is their wish, rather than having to repay their original loan first, take out a new one.”

In practice, the idea is simple: You already have credit in bank Z. You want to move and buy bigger or elsewhere, but the rates discourage you. Thanks to this measure, you could transfer your loan – and the negotiated terms – to another purchase. No need to close your number one loan and take out a loan under the current conditions (obviously less favorable than a few years ago).

Ask a French person who already owns their loan and is repaying it at a rate of 1.4%. It is unlikely that he will oppose this proposal. And with good reason, there are big savings to be had, of course on the total interest amount, but also on any early repayment penalty (if this clause has not previously been negotiated before signing the offer loan – by a broker, for example).

Even if since January, rates have been falling at a regular pacewe are far from equal to the subsidy conditions that some were able to obtain at the time when the European Central Bank (ECB) pursued an extraordinary low-interest rate policy. It is therefore not surprising if some, among the least eager, prefer to postpone their repurchase project a little.

But then Pretto, if this measure seems positive, why don’t you believe it? To understand, you must first remember how a home loan works.

In order for a bank to lend you money for your purchase, it must first borrow it on the financial markets. For this, it is subject to the policy rates imposed by the European Central Bank, which include a ceiling (maximum) and a floor (minimum) – if you want to know more, we advise you this little video. And as for all market players, both professionals and individuals, it is currently facing higher rates – the effect of the war in Ukraine and the inflation generated in 2022.

With loan portability, the bank lends money at current market ratesbut you repay it at the rate you negotiated before the crisis. You don’t have to be a math whiz to understand that she has a lot to lose in the story. And as with any business, the bank has nothing to gain by lending to you at a loss – unless you transfer a multi-million dollar portfolio on top of the loan, but let’s face it, the chances are slim even if you want to.

The big risk is therefore that the banks raise their interest rates to protect themselves against this boomerang effectto rescue. Which would have the consequence of putting everyone at a disadvantage, those who want to buy back (the second-time buyers, in the jargon) as well as those who have not yet been able to access the property (the first-time buyers) . And so we risk, based on a “common sense” measure, worsening the situation.

So what to do?

Okay for the criticism, but what do you propose to revive the market and the production of credit, some may ask us. No simplistic suggestion straight out of a hat is going to magically dispel the situation with the wave of a magic wand, however certain paradigm shifts could help.

This will be especially the case with a revision of the famous 35% debt ceiling set by the High Financial Stability Board. A proposal made recently by another member of the majority, Lionel Causse, but rejected by both the Bank of France and the Assembly (and finally withdrawn on April 29). A pity when we know that no formal rules have been laid down for tenants. And while it is generally recommended to earn 3 times your rent, in most large cities the latter can represent up to 50% of income.

Faced with the lack of housing on the rental market, it will be urgent to promote measures to promote tenants’ access to real estate. Such as extending the loan period, to increase the purchasing capacity of the French.

Transferability will be discussed next September

Asked by Challenges about his proposals (which will be debated in September in the National Assembly) and his discussions with banking institutions, MP Damien Adam suggested he had not yet had the opportunity to speak to them. “But I plan to meet with the banking players in the coming weeks. (…) we can expect some restraint because this measure will generate potential price losses for them in the future. However, they must realize that the real estate market is completely saturated and that this limits the number of loans they provide. Thus, if they left this portability in the contracts, citizens could be induced to make additional loans to those they already have. Because if they buy a slightly more expensive property, they must supplement the additional cost of the new home with a new additional credit. It’s a win-win. The banks may make less future income, but still more loans if the real estate market recovers, so it is in their interest.“

Could the proposal, which had already been examined by the former housing minister Olivier Klein in 2022 (but had not been supported by the government), get a better reception? “Today, the current minister, Guillaume Kasbarianseems more open about the question. A few weeks ago he appeared to say that the idea was interesting and should be studied, although the text will certainly be supplemented by amendments in September. I remain optimistic about the future, because this measure would make it possible to achieve results in the short term and would not cost anything to the public finances.“

Portability of loans: Pretto doubts, the Banking Association too

MP Damien Adams’ proposal is not being imitated by the banks. In a press release published on Tuesday 28 May, the French Banking Association (FBF) warns of the risks. “For some time now, ideas about portability and transfer of loans have been circulating, which are not new and have more disadvantages than advantages in addition to the particular weight and complexity of their possible implementation. They could, above all, question what is the protective benefits for households of the French model of housing finance contrary to the desired objective.” This could sign the end of fixed interest rates, a special feature of French loans (elsewhere in Europe variable interest rates are legion), which provides undeniable security to buyers in France.