New mortgage rules could mean fewer new houses

Instructions from the Banque de France to banks to tighten lending conditions for home loans may dampen the market in 2020

21 March 2020

The number of new homes built in France fell last year and a clampdown on mortgages looks set to reduce the figure again – despite unemployment falling and the economy growing.

There was a 2.3% fall in the number of permis de construire for individual houses, flats and lotissements (housing estates) in 2019, with 449,400 permits issued, government figures show. The figure is boosted by high figures for December, compared to 2018, when projects ground to a halt due to the gilets jaunes protests.

Individual house permits were up 4.6% for the year, compared to 2018, while the numbers for flats fell by 6.8% and lotissements by 3.4%.
With mortgage rates hitting record low levels in 2019, the rise in the number of individual houses is likely to be due to people deciding it was a good time to build.

The Fédération Promoteurs Immobiliers (FPI) said the figure showed that market forces were going against the government’s stated wish to limit the number of new individual houses and encourage higher- density projects and those which favour rebuilding in towns and cities. FPI
president Alexandra François-Cuxac said: “France remains a country where you can build.”

But she added: “We must not hide the fact the figures for collective housing, which have seen a fall compared to the period 2016 to 2018, are disappointing. It is still difficult to launch projects in cities where the need for new homes is highest.”

A spokeswoman told Connexion that, for 2020, its members were worried by the supply of new projects and not demand from buyers, which remained high.

Julien Denormandie, minister in charge of housing and towns, pointed to study groups which aim to rewrite building regulations and to optimise the use of land available for building in towns and cities.

At the same time, he said help for homes and buildings to be renovated will be accelerated.

Usually, building projects shoot ahead in times of relatively low unemployment in France, and many analysts think the continuing fall in unemployment is good for the building sector in 2020. However, this optimism might be curbed by instructions from the Banque de France to banks to tighten lending conditions for home loans.

It said banks must ensure that repayments of loans do not exceed 33% of household income of the borrowers, and home loan repayment periods must be restricted to a maximum 25 years.

This led to an extraordinary public row, with the banking industry trade body hitting back and saying that the new regulations will mean 100,000 loans being refused in 2020.

Research by the banking body’s chief economist showed that if the new rules had been in place in 2019, around 20% of the home loans would have been excluded.

The Banque de France described the research as faulty, saying it did not take account of savings, nor elements of flexibility in the rules.

It repeated its threat that if banks did not accept the new rules, they will have to put hundreds of millions of euros extra into capital reserves which will be locked away and only be used if there is a crisis in the housing market.

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