Often considered optional, the personal contribution remains a criterion facilitating the obtaining of a mortgage. The Bank of France would like to put in place a cap on the loan-to-value ratio (LTV) to secure borrowings. This would make it possible to exclude the least solvent households and avoid real estate speculation.
A financial guarantee for the lender
Equity from the savings of individuals, the personal contribution makes it possible to acquire goods in addition to a mortgage. Although it is optional when borrowing, banks favor this factor in all of the requests they process. They see it as an additional guarantee of the sound financial management of the client’s accounts and a reduced amount to lend.
The prudential control and resolution authority (ACPR) estimated that on average the personal contribution represented 14% of the amount of the asset. A figure higher than their previous requirement which fixed the rate of this contribution at 10%, without including the notary fees and other related expenses.
However, the particularly favorable borrowing conditions in recent months have prompted banks to be less strict on this criterion. Circumstances which push the Banque de France to ask itself the question of the need for a personal contribution.
Anticipate real estate crises through personal contribution
The reflection of the Banque de France on the subject of the need for personal contribution aims to stem real estate speculation. Indeed, given the low mortgage rates of recent times, many individuals may want to take the plunge. And this even if their debt ratio exceeds the 33% ceiling granted by the banks.
In order to avoid this, the institution would like to introduce a cap on personal contributions, as is already the case in other European countries. This capping of the loan-to-value ratio (LTV) would impact the number of mortgage loans granted by lending institutions, since households presenting risks will be excluded.
As a result, some rebels believe that this measure could reduce the growth of the real estate market. However, if there is a decrease in the volume of borrowing, the prices of goods should adjust accordingly and therefore decrease. Ultimately, this could benefit households not being able to benefit from a mortgage, their savings being able to meet their need for personal contribution. An interesting scenario, but the scale of which has yet to be demonstrated.
Source: Magazine Assurance