(Photo credits: Pixabay – VisionPics)
Often unknown to the general public, the attrition rate is, however, a key element in the acceptance or rejection of a mortgage application file, as well as a safeguard established by the authorities to protect borrowers. It was reduced to 2.40% on April 1. Good news… or not necessarily?
The attrition rate, what is it?
wear rate -or usury rate- refers to the maximum Annual Effective Rate (APR) at which a financial institution can grant a loan.
For a mortgage loan, the Annual Percentage Rate (APR) is made up of all credit-related costs, such as:
- The basic interest rate
- Administrative expenses owed to the bank
- Commissions owed to intermediaries, such as a broker, for example.
- The cost of creditor insurance (ADE)
- The cost of the property appraisal paid to a real estate agent
- Guarantee fees (mortgage or bond)
- Any fees imposed to obtain credit, such as account maintenance fees if you have to open a bank account with the lender.
At the end of each quarter, the Banque de France fixes the usury rate for the following quarter, which must not be exceeded, otherwise the loan can be considered “usurious”. Lending usurious money is a crime, punishable by two years in prison and a fine of 300,000 euros according to article L341-50 of the Consumer Code.
How is the attrition rate calculated?
The Banque de France has established a series of loan categories and calculates for each one a specific usury rate, which also varies according to the duration of the loan.
Five categories have been defined:
- Fixed-rate loan with a term of less than 10 years
- Fixed-rate loan with a term between 10 years and less than 20 years
- Fixed-rate loan with a term of 20 years or more
- Variable rate loan (in this case the duration is not taken into account)
- Bridging loan (in this case the duration is not taken into account)
As for the wear rate on a mortgage, the Banque de France lists the average rates charged by financial institutions and increases them by a third. The attrition rate is set at the end of each quarter for the following quarter and published in the Official Gazette.
For example, for a fixed-rate mortgage loan with a term of 20 years or more, the average effective rate charged in the fourth quarter of 2021 was 1.81%. Therefore, it rose mechanically to 2.41% on January 1 for the first quarter of 2022.
Starting April 1, 2022 and for the next quarter, this same churn rate was set at 2.40%, i.e. a further decrease of 0.01% compared to the previous quarter, but a decrease of 0 .20% compared to the previous year (2.60%). % in the second quarter of 2021).
Therefore, for the period from April to June and for this category of loan, no financial institution can legally validate a mortgage application file whose APR exceeds the usury rate of 2.40%.
A safety net for the borrower
By thus setting a legal attrition rate that must not be exceeded, reassessed each quarter for the following quarter, the Banque de France plays a role of regulation of the economy but also of consumer protection, by establishing protection limits against excessive rates that could be offered without this ceiling. The objective is clear: to prevent borrowers from subsequently finding themselves in a delicate financial situation.
However, a “scissor” effect can sometimes form due to the discrepancy between usury rates, based on the previous quarter’s lending rates, and credit rates, reassessed almost in real time by financial institutions in depending on fluctuations in the financial markets.
Thus, in the first quarter of 2022 the attrition rates fell, based on the figures for the last quarter of 2021, while the credit rates rose again, mechanically reducing the number of files of debtors entitled to a mortgage. This discrepancy should last a few more months and then gradually settle down.
Stéphanne Coignard (firstname.lastname@example.org)