France eases mortgage rules to allow more loans of 27 years

France has relaxed key rules around mortgage repayments in a bid to kickstart the falling property sector and in particular help first-time buyers.

The changes will make access to housing credit easier at a time when many first-time buyers are being locked-out of the market by high interest rates despite a drop in property prices.

One of the key changes is the ability for mortgage repayments to be spread over 27 years in more cases.

Others include an amendment to the rules over the borrowing-to-income ratio (currently set at 35% of borrowers’ income) and bridging loans, and more flexibility for banks to derogate from the rules without facing sanctions.

The Haut Conseil de stabilité financière (High council of financial stability, or HCSF) adopted the measures on December 4. The changes will come into force by the beginning of 2024 at the latest but could begin as early as December 14.

Mortgages of 27 years for properties needing renovations

The Banque de France and Finance Ministry both agreed the current maximum limit of 25 years for a mortgage should remain.

However, in cases where at least 10% of the loan will go towards renovation works (travaux), repayments can be spread over 27 years.

This would, in turn, drop monthly repayments by “up to €30… which has an impact on [the level of] indebtedness,” said finance broker Jonathan Mhanni to FranceInfo.

Previously, works had to cover 25% of the total mortgage amount to be eligible for a 27-year repayment.

The Banque de France is cautious of ‘over-indebtedness’ and situations which allow people to borrow too much and therefore be at risk of not being able to meet repayments.

Therefore, there are limited changes on the side of mortgage applicants themselves.

One other change, however, is that the interest in repayment of ‘bridging loans’ (prêt relais) will not be taken into account when calculating applicants’ borrowing-to-income ratios.

This will help those who need a bridging loan to reach the levels required for a mortgage to borrow slightly more without going over the 35% ratio, which the Banque de France and government alike do not want to change.

Read more: Seven key trends in new French property market data

Banks given more flexibility

The major change for banks is how derogations will be measured. Banks can derogate from the usual rules in up to 20% of cases (usually to help first-time buyers, who must account for at least one third of derogations). However, currently they only do so for 14% of applicants, thus cutting off a number of first-time buyers.

This is said to be because banks fear sanctions for going over the 20% limit so tend to be cautious.

In the future, banks will have six months to return their overall derogation levels to below 20% if they go over before facing sanctions. This, in theory, should allow them to be more open with this option.

Further changes on the way?

The HCSF announced it is also in support of a proposal from the Fédération bancaire française (French banking federation) to allow a solvent loan application to be reconsidered after a bank refusal.

This would allow borrowers to be told why their application was rejected, allowing them to reformulate an application with a higher chance of success, as well as be informed of where they can look for alternative funding.

The HCSF assures that this would not amount to a kind of ‘universal right to credit’ for applicants – “That would be the best way to cause people to get into too much debt and… it wouldn't be constitutional,” said a source from the council.

There are also questions over how impactful this would be, considering neither the Finance Ministry nor the Banque de France publish figures on how many mortgage applications are rejected.

If approved, this point could come into force as early as February.

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