AS 114 financement habitat 2019 Version anglaise

Analyses and syntheses

Housing financing in 2019

No 114 - 2020

Housing financing in 2019 2

GENERAL SUMMARY

In an environment where interest rates have dropped again and reached historical lows, the housing market was very dynamic in France in 2019: the number of transactions reached a new historical peak of 1,065,000 sales, while the INSEE price index for existing property increased by 3.8% in metropolitan France (+4% in the Ile-de-France region and +3.6% in the rest of the country).

In this environment, the annual issuance of housing loans amounted to EUR 246.4 billion in 2019, a 21.3% increase compared with 2018. At the same time, the outstanding amount of housing loans grew by 6.8%. The French housing lending model relies on three mainstays: 1/these loans are almost exclusively granted at a fixed rate (98.5% of issuance in 2019), thereby limiting the risks associated with a possible increase in interest rates for households; 2/nearly all outstanding loans (97.3%) are secured by credit protection, including in the form of a third party guarantee (“caution”) or mortgage, so as to limit losses for banks in the event of borrower default; 3/the lending policy is still mostly based on the assessment of the borrower’s creditworthiness, measured in

particular by the debt service to income ratio (DSTI), and not on the market value of the financed property. Despite sound fundamentals, the evolution of housing borrowing conditions in France is a concern for financial stability. While French household debt increased by 1.9 percentage points (pt) to 61.6% of the gross domestic product in 2019, at the same time and similarly to 2017 and 2018, household borrowing conditions have continued to ease. Thus:

The average amount of a loan has increased almost uninterruptedly since 2009 to reach EUR 179,026 in 2019, up by 5.2% compared to 2018, and higher than the increase in real estate prices.

The average loan duration continued to increase for the fourth consecutive year. It has exceeded its 2008 level and has now reached 20.3 years, a 4-month increase compared to 2018.

The average borrower debt-service-to-income (DSTI) ratio rose slightly for the fourth consecutive year to reach 30.3% in 2019, but still remains below its 2009 level (31.6%). In addition, the share of loans extended with a DSTI ratio above 35% rose by 1.2 pt to 26.1%.

The average debt-to-income (DTI) ratio also increased for the fourth consecutive year to reach 5.4 years in 2019 (+2 months compared with 2018), its highest level since 2004.

Finally, the ratio between the amount of loans and the value of the property financed at the time of granting (loan to value or LTV) increased for the fifth consecutive year (+1.5 pt), reaching 88.8%, its highest level since 2001. However, as almost all loans are amortisable and property prices continue to rise, the average LTV ratio during the life of a loan is lower than the average LTV at origination and has remained relatively stable since 2016 at around 73%.

In this context the Haut Conseil de Stabilité Financière (HCSF, the French macroprudential authority) issued a recommendation on 20 December 2019 aimed at capping the DSTI ratio at 33% and the maturity at 25 years at the time of granting for housing loans distributed in France. The implementation of this recommendation will be monitored through a dedicated report (named “CREDITHAB”), revised by ACPR Instruction No 2020-I-02. The first submissions of this report are expected for September 2020.


Yet, risks appear to be contained, as evidenced by the low delinquency, both in terms of stock (doubtful outstanding rate at 1.3% as at 31 December 2019, down 4 basis points (bps) compared with 2018) and in terms of flows (12-month defaults accounted for 0.71% of outstanding amount in the first quarter of 2020, the lowest level since mid-2015). The cost of risk remains negligible at 2 bps in 2019, below its average since 2006 (4 bps). This reduced delinquency is reflected in the low risk weights which continue to decline (-0.4 pt year-on-year to reach 10.9% in June 2019) but remains in

the norm compared to all countries covered by the transparency exercise of the European Banking Authority (EBA), especially when taking into account risk coverage by the housing loans guarantors. However, despite the stability of the average cost of liabilities and the slight decline in overhead costs, the net margin for the outstanding housing loans continued to deteriorate in 2019 as a result of the rapid decline in the average interest rate (from 2% in December 2018 to 1.8% in December 2019) and due to the intensity of competition in this market. With new loans rates remaining below the average outstanding rate, the renewal of the stock of loans is expected to continue reducing the average interest rate for outstanding loans, putting additional downward pressure on margins. Against this backdrop, the HCSF also wanted to draw the attention of credit

institutions to the need of pricing housing loans in a way that does not undermine the French housing financing model. To this end, the new report “RENT_ IMMO” established by ACPR Instruction No. 2020-I 04 will ensure that costs and risks are adequately covered. The first submissions of this report are expected in September 2020. Owing to the current health crisis, the beginning of 2020 was marked by a sharp decline in the number of real estate transactions once lockdown measures were implemented. While monthly credit issuance was very robust in January (+33.7% compared with January 2019) and February (+41.8%), it slowed down to +7.6% in March and then to +10.9% in April. At the same time, a sharp rise was observed in loan transfers and renegotiations, which increased by 126% over the

first 4 months of 2020. The share for such transfers and renegotiations rose from 25.4% of monthly production in December 2019 to 47.1% in April 2020. Excluding these loan transfers and renegotiations, monthly issuance decreased by 6.1% in March and by 28.9% in April. These new loans, which correspond, for the most part, to transactions initiated commercially at the end of 2019, do not allow for the impact of the HCSF recommendations to be observed yet.

Keywords: retail housing loans, average loan, average duration, loan to value, debt-service-to-income, doubtful outstanding loans and provisions, cost of risk JEL codes: G21, R21, R31

Written by Laurent FAIVRE, Camille LAMBERT-GIRAULT and Emmanuel POINT.


TABLE OF CONTENTS

Content Key figures1 ......................................................................................................................................... 5

Methodology ........................................................................................................................................ 6

Markets remained dynamic ................................................................................................................. 7

1. Prices and transaction volumes picked up .................................................................................. 7

2. Production up compared to 2018, supported by the continued decrease in interest rates ............................................................................................................................................. 8

3. External loan transfers on the rise ............................................................................................. 10

4. Excluding external loan transfers, the production of new loans remained high ........................ 11

5. The production of bridge loans remained dynamic, albeit marginal .......................................... 12

6. Fixed-rate loans remained largely predominant ........................................................................ 13

7. Mutualist banking groups were still key market players ............................................................ 14

8. Guaranteed loans still accounted for the bulk of loans ............................................................. 15

Continued deterioration of lending standards ................................................................................... 17

1. The amount of the average loan was still being drawn by owner-buyers ................................. 17

2. Average maturity exceeded its 2008 peak ................................................................................ 18

3. A DSTI ratio that remained contained on average .................................................................... 20

4. Average income at the time of granting rose marginally ........................................................... 24

5. The LTI ratio continued to rise rapidly ....................................................................................... 25

6. LTV ratio up at origination but stable over the life of the loan ................................................... 27

Risks that remain contained .............................................................................................................. 31

1. The share of housing loans in total loans showed a slight increase ......................................... 31

2. The rate of gross doubtful loans was down ............................................................................... 32

3. Provisioning ratios were relatively stable .................................................................................. 35

4. The cost of risk increased .......................................................................................................... 37

5. The average risk weight was above trend when adjusted taking into account secured loans .......................................................................................................................................... 38

6. Margins continued to decline ..................................................................................................... 40

Annex 1 - Analysis of the evolution of granting criteria ..................................................................... 42

Annex 2 - Evolution of housing loan margins .................................................................................... 50

Annex 3 - Evolution of the monthly monitoring of the production of housing loans .......................... 55

Annex 4 - Glossary ............................................................................................................................ 56


1

1 Figures as at 31 December 2019 (or the year 2019) and changes compared to 2018.

Key figures1


This “Analyses and Syntheses” publication relies on the answers collected by the ACPR's General Secretariat within the framework of its annual survey on housing financing for the year 2019 as well as on the monthly reporting data on the

production of retail home loans implemented by the ACPR in September 2011 using a sample of

representative banks2; the analysis is also based

on statistical data from the Banque de France and external sources (INSEE, French General Council for Environment and Sustainable Development (CGEDD), etc.), as well as on information

published by the European Banking Authority in its

annual transparency exercise3, which allow for

some international comparisons.

As was done in 2018, the General Secretariat of the ACPR asked the main guarantors of housing loans (Crédit Logement, Caisse d’Assurances Mutuelles du Crédit Agricole (CAMCA: Crédit .

Agricole Group), the Compagnie Européenne de Garanties et de Cautions (CEGC; BPCE Group), Parnasse Garanties (BPCE Group) and CM-CIC Caution Habitat (Crédit Mutuel Group) as well as the Société de Gestion des

Financements et de la Garantie de l’Accession Sociale à la propriété (SGFGAS) in order to obtain detailed information on the amount of loans covered by a guarantee.

As for each year, several institutions were able, when sending their data for the year 2019, to supplement or modify their data for the previous years, thereby improving the representativeness of several indicators and correcting reporting errors. As a result, some figures in this study may differ from those

published in respect of previous years.

2 BNP PARIBAS, BNP PARIBAS PERSONAL FINANCE, SOCIETE GENERALE, CREDIT DU NORD, all the CREDIT AGRICOLE’s CAISSES REGIONALES, LCL, the CAISSES D’ÉPARGNE network, the BANQUES POPULAIRES network, CREDIT FONCIER DE France, CREDIT MUTUEL, CIC, CREDIT IMMOBILIER DE France, HSBC France and LA BANQUE POSTALE. These institutions account for 97.6% of outstanding housing lending as at 31 December 2019. 3See https://eba.europa.eu/risk-analysis-and-data/eu-wide-transparency-exercise for the financial year 2019.

Methodology


1. Prices and transaction volumes picked up

Against the backdrop of still declining property loan interest rates (see Chart 3 below), 2019 was a very dynamic year on the housing market, both in terms of prices and transaction volumes.

This upward trend in prices, which began in 2015, continued in 2019. However, trends remain contrasted from one region to another: while prices for existing properties rose by an average of 3.8% throughout France, they increased by 6.7% in Paris and by 4% in the Ile-

de-France region against 3.6% in the rest of the country (Chart 1).

New housing prices followed the same trend, with a 3.7% increase throughout France. These

trends are still continuing and gaining momentum in the first quarter of 2020. Despite very favourable interest rates for real estate projects, this price hike has put pressure on the purchasing power of households, as illustrated by the downturn recorded since the end of 2017 in the household solvency indicator

calculated by Crédit Logement4.

Chart 1 Residential property prices

Source: INSEE index; base 100 in annual average 2015; last point: first quarter 2020

4https://www.lobservatoirecreditlogement.fr/uploads/obs_publications/1736099891-TDB_Fevrier_2020_Observ_Credit_Logement_CSA.pdf

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Markets remained dynamic


At the same time, the number of annual transactions reached a new all-time high with 1,065,000 sales in 2019 in France, well above the long-term annual average of 802,000 sales that has been observed since 2000. Lockdown measures had a direct impact on the number

of transactions (Chart 2). As a result, in April 2020 they stood at 973,000 sales transactions over a rolling 12-month period (-1.2 % compared with April 2019), down for the first time since July 2015.

Chart 2 Long-term sales for the existing home segment (1 year cumulative amount,

in thousands)

Source: CGEDD according to DGFiP (MEDOC) and notarial databases; last point: April 2020

2. Production up compared to 2018, supported by the continued decrease in interest rates

The fall in housing financing interest rates has gained momentum in 2019 (Chart 3). After a 12 bp decrease in 2018, the interest rates on housing loans dropped by 32 bps in 2019 to reach 1.17% as at 31 December 2019. On the contrary, the average interest rate

increased to 1.31% in April 2020 but this was due to the increase in the share of renegotiations (see below). When renegotiations consist in extending the duration of repayments, the interest rates are mechanically higher than those of new loans : excluding renegotiations, interest

rates on housing loans fell by 2 bps compared to March and remain historically low at 1.15%.

Chart 3 New housing loan interest rates

Source: Banque de France; last point: April 2020

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The decline in interest rates has been accompanied by a gradual upturn in demand for housing loans in 2019, after a slight decrease in 2018. In addition, banks have reported that they have tightened their credit granting standards in the first quarter of 2020 (Chart 4).

In this context, the annual production of housing loans (including loan transfers and renegotiations) continued the upward trend that began in the second half of 2018 to stand at

EUR 246.4 billion in 2019 (i.e. a 21.3% increase compared with 2018), a figure that is well above the average annual amount since 2003 (EUR 151.8 billion) (Chart 5). Despite the health crisis, monthly production continued to rise in March (+7.6%) and in

April 2020 (+10.9%); however, excluding loan transfers and renegotiations, that figure fell by 6.1% and 28.9% over the previous two months.

Chart 4 Criteria for granting and requesting housing loans

Source: Banque de France, Monthly bank lending survey in France; last point: March 2020

Chart 5 Production of housing loans (in billion EUR)

Source: Banque de France; New retail housing loans, CVS flows, cumulative over 12 months; last point: April 2020

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In 2019 loans recorded a 6.8% growth, higher than that observed in 2018 (+5.8%), to stand at EUR 1,079 billion as at 31 December 2019

(Chart 6). The increase in the average outstanding amount slowed slightly, reaching 6% in April 2020.

Chart 6 Outstanding housing loans to individuals (in billion EUR)

Source: Banque de France, Housing loans to individuals residing in France (securitised outstanding amounts reintegrated); last point: April 2020

3. External loan transfers on the rise

External loan transfers rebounded in the second half of 2019 and recorded an increase of 19.4% in 2019 compared with 2018 (Chart 7), with their share in annual production increasing by 49 bps to reach 10%. This trend accelerated in 2020, especially taking into account the health crisis, transfers being the only category of loans with an increase in their monthly production in March 2020 (+44.4% compared with March 2019) and April

2020 (+30.6% compared with April 2010). In April 2020, loan transfers accounted for 22.4% of monthly production, and 11.8% on a year-on-year basis.

In addition, the share of loan transfers and

renegotiations5 in the annual production

increased by 4.4 pts in 2019 to reach 21.7%. This trend accelerated in 2020, with the share of loan transfers and renegotiations reaching 26.5% in April 2020 over 12 rolling

months (and even reaching 47.1% of production for April), although this percentage is still below the peak of May 2017 (52.6%).

5http://webstat.banque-france.fr/fr/quickview.do?SERIES_KEY=280.MIR1.M.FR.B.A22PR.A.W.A.2254FR.EUR.N

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Chart 7 External loan transfers - monthly flows in billion EUR (left-hand scale) and

% of the production of housing loans (right-hand scale)

Source: ACPR, annual survey on housing financing and monthly monitoring of the production of housing loans; last point: April 2020

4. Excluding external loan transfers, the production of new loans remained high

Excluding external loan transfers, the production of housing loans over 12 rolling months rebounded in 2019, recording a 13% increase (Chart 8). The trend continued at the same pace in January and February 2020 before declining in March and April 2020 due to the

drop in the monthly production during these 2 months (-25.2% and -53.2% respectively). The structure of the loan production excluding loan transfers remained generally stable in 2019 (Erreur ! Source du renvoi introuvable.), as buyers that were already owners still accounted for the largest share

of new lending in terms of amount.

Chart 8 Evolution of the production of housing loans excluding loan transfers

Source: ACPR, monthly monitoring of the production of housing loans, cumulative data over 12 months; last point: April 2020

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Chart 9 Evolution of the housing loan production structure excluding loan transfers

Source: ACPR, monthly monitoring of the production of housing loans; data average over 12 rolling months; last point: April 2020

Given the stability of the production structure, the structure of the outstanding stock excluding loan transfers was also stable overall in 2019: the share of buyers who are already homeowners remained largely predominant and increased slightly, from 49.7% to 50.2%

(+0.4 pt); conversely, the share of first-time buyers declined slightly, from 27.7% to 27.2% (-0.5 pt). The share of buy-to-let investment increased slightly, by 0.1 pt, to reach 17.7% (Chart 10).

Chart 10 Structure of outstanding housing lending to individuals excluding loan transfers

Source: ACPR, annual survey on housing financing

5. The production of bridge loans remained dynamic, albeit marginal

The production of bridge loans showed sustained growth in 2019 (+15.7%). The share of bridge loans in the loan production

remained almost stable, going from 4.2% in 2018 to 4.3% in 2019, and remained well below its record high level of 2007 (11.5%) (Chart 11).

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Chart 11 Share of bridge loans in the new housing loan market segment

Source: ACPR, annual survey on housing financing and monthly monitoring of the production of housing loans; average data over 12 rolling months

6. Fixed-rate loans remained largely predominant

Fixed-rate loans remained largely predominant, accounting for 98.5% of the production of housing loans, a stable

percentage compared with 2018 (Chart 12). This long-standing, traditional characteristic of the French market is a factor in preventing credit risk, especially in a low interest-rate environment, as borrowers are protected from the negative impact of a potential

increase in interest rates on their solvency. The share of floating-rate loans remained stable at 0.6%, representing a tiny fraction of granted

loans. As in previous years, loans with a "capped rate" (a variable interest rate associated with a cap that protects the borrower in the event of a significant increase in interest rates) still accounted for the majority of floating-rate loans (69.8%).

Chart 12 Breakdown of new loan structure by interest rate type


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The share of fixed-rate loans in the total amount outstanding remained very high and increased (95.9% in 2019 compared to 94.6% in 2018) while the share of floating-rate loans decreased from 3.5% to 2.6%. The share of other loans was down, from

1.9% to 1.5% (Chart 13). The latter mainly comprises loans that combine a fixed rate for a given time period before converting to a floating rate, as well as bullet loans.

Chart 13 Breakdown of the outstanding loan structure by interest rate type


7. Mutualist banking groups were still key market players

French banks accounted for almost all outstanding housing loans granted in France. Three mutualist banking groups held a dominant position, accounting for more than three-quarters of market shares

(Chart 14). The data published by the EBA shows that the Crédit Agricole group, which remains the leader, has increased its market share over the past 5 years (+2.6 pt) (Chart 15).

Chart 14 Market shares of the various banking groups as at 30 June 2019 (in outstanding amounts)

Source: EBA, Transparency exercise (non-SME retail exposures secured by real estate treated in standard and advanced methods) ; ACPR calculations including all banks reporting exposures to France

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Crédit Mutuel Group16.7%

Crédit Agricole Group35.3%

BPCE Group26,3%

BNP Paribas Group9.4%

Other French banking groups0.4%

Other foreign banking groups0.8%


Chart 15 Evolution of the market shares of the various banking groups between 31

December 2014 and 30 June 2019

Source: EBA, Transparency exercise (non-SME retail exposures secured by real estate treated in standard and advanced methods) ; ACPR calculations including all banks reporting exposures to France

8. Guaranteed loans still accounted for the bulk of loans

Another characteristic of the French market is that guaranteed loans remain the vast majority, at 61.9% of outstanding amounts, a percentage

that is up 1.8 pt compared to 2018 (Chart 16). This type of financing, which is based on a dual examination of the borrower's situation at the time of granting (both on the part of the lender and that of the guarantor), makes it possible both to strengthen the selection of borrowers and to share risks in a way that substantially reduces the burden borne directly by banks in the event of default. Credit institutions continued to be the first providers of guarantees, accounting for 33.9%. Guarantees provided by an insurance company

have continued to grow continuously since 2010, from 19.4% on that date to 28% in 2019. The proportion of real collateral (such as mortgages or lender’s lien) decreased slightly by 0.6 pt to

reach 28.1% in 2019, while the proportion of other guarantees were down by 0.9 pt, at 7.2%. Unsecured loans decreased by 0.3 pt at 2.7%.

Guarantees provided by credit institutions were mainly issued by Crédit Logement, which covers –in variable proportions– all the banks included in the sample, and by CM-CIC Caution Habitat, which covers the Crédit Mutuel group. The guarantees provided by insurance companies are mostly issued by the subsidiaries of mutualist groups: CEGC for the BPCE group, and CAMCA for the Crédit Agricole group; other guarantees

mainly include guarantees by the Société de Gestion des Financements et de la Garantie de l’Accession Sociale à la propriété - SGFGAS (7.6%) and a wide range of other arrangements (personal guarantees, pledging of life insurance policies…).

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Chart 16 Structure of outstanding loans by type of guarantee

Source: ACPR, annual survey on housing financing In addition, the survey shows that the vast majority of borrowers were still insured against death (92.3%) and work disability (85.3%), which is likely to reduce credit risks related to life accidents for lenders and borrowers alike. Insurance against loss of .

employment on the other hand, remains infrequent. It is taken out by only 3.1% of borrowers, a percentage that is down 0.5 pts compared to 2018 (Chart 17).

Chart 17 Share of borrowers covered by an insurance policy


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1. The amount of the average loan was still being drawn by owner-buyers

The average amount of a loan at granting has increased almost uninterruptedly since 2009 to reach EUR 179,026 in 2019, i.e. an increase of 5.2% compared to 2018, which remains higher than that of property prices (Chart 18).

The trend continued at a slower pace in the first quarter of 2020, with the amount of the average loan reaching EUR 179,467 in March 2020, up by 3.9% over a 12 rolling month period.

Chart 18 Average loan amount (expressed in thousand EUR) and evolution compared with property prices (right-hand scale)

Source: ACPR, annual survey on housing financing and monthly monitoring of the production of housing loans; INSEE (Existing Housing Price Index, Metropolitan France)

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Variation ofthe averageloan, adjustedfor changes ofreal estateprices (rhs)Average loan(lhs)

Continued deterioration of lending standards


The increase in the average loan amount in 2019 reflects in particular the increase in loans to existing homeowners, who have higher incomes and whose average loan size, already higher than that of the other segments, increased by 7.6% in 2019 to

reach EUR 207,223 (Chart 19). The increase in the average loan amount in the other segments is also relatively sustained (+4.3% for first-time buyers and +3.9% for external loan transfers).

The average loan amount is more stable for buy-to-let (+1.5%). The increase shows a slight inflection in the first months of 2020. Year-on-year, the increase in the average loan amount is more limited in April 2020 at 3.5%: it concerns in particular loans to existing homeowners (+5.5%

at 208,420) and loan transfers (+6.9% at 150,537).

Chart 19 Average loan amount by purpose (expressed in thousand EUR)


2. Average maturity exceeded its 2008 peak

The average duration of loans at the time of granting continued to increase for the fourth consecutive year, to exceed the highest level previously reached in 2008 (20.3 years), recording a 4-month increase compared to 2018 (Chart 20). It remained at this level in the first quarter of 2020. The average duration for loan transfers is set more than three years below the average, reflecting the fact that .

they are already partly amortised. Excluding loan transfers, the average duration at granting stands at 21 years as at 31 December 2019 (+6 months). This rapid increase in the average duration of loans, which is likely to have an impact on the solvency of medium- and long-term borrowers, confirms the analysis that led the HCSF to recommend that banks limit

the duration of loans to 25 years maximum.

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Chart 20 Initial duration of transactions (excluding bridge loans)

Source: ACPR, annual survey on housing financing and monthly monitoring of the production of housing loans

The increase in the average duration in 2019 was primarily due to loans to buyers who were already owners (+7 months at 21.4 years) and first-

time buyers (+5 months at 22.5 years) (Chart 21). The average duration stabilised at

20.3 years in the first months of 2020, but this stabilisation is explained by the increase in the share of loan transfers in loan production.

Chart 21 Initial duration of transactions (excluding bridge loans) by purpose


The average duration of loans at the time of granting continued to increase at a slightly faster pace in the Île de France region (21.2 years in December 2019, i.e. +6 months in one year) than in the provinces (20.4 years in December 2019, i.e. +4 months) .

(Chart 22). The average residual maturity of the outstanding stock remained relatively stable at 15.5 years in 2019 compared with 15.6 years in 2018 (Chart 23). However, the share of the “≥ 20 years” segment increased by 4.3 pts, reaching 29.6%.

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Chart 22 Initial duration of transactions (excluding bridge loans) by location


Chart 23 Structure of outstanding housing lending by residual maturity


3. A DSTI ratio that remained contained on average

The DSTI ratio is defined as being the ratio between (i) all the recurring expenses of borrowers (including repayments of all their loans) and (ii) their total income before taxes. The average DSTI ratio rose slightly (+0.1 pt) for the fourth consecutive year to reach 30.3% in 2019, but remains below the level reached in 2009 (31.6%) (Chart 24). Despite the increase in the average loan amount (+5.2%), this limited

.

increase in the average DSTI ratio can be explained by the combination between low interest rates and the relatively flat trajectory of the curve, which allows borrowers to extend their loan durations without significantly increasing their repayment costs as measured at the time of granting. The lengthening of the duration of loans nevertheless increases the risk of less sustainable repayment schedules.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

< 5 yrs 5-10 yrs 10-15 yrs

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Chart 24 Average DSTI ratio at the time of granting


A detailed analysis by transaction type shows that the DSTI ratio increased for borrowers who already own a home and for those who are investing in rental property (Chart 25). Both segments increased by 24 bps and 39 bps respectively in 2019. According to data collected until April, however, the DSTI ratio started to decline in early 2020, for all segments. While this development is in line with the HCSF's December 2019 recommendation, the time lag between commercial proposals and the entry into force of loans suggests that this trend is not, at this point, a direct effect of the recommendation.

The structure of loan production according to the DSTI ratio in 2019 is fairly similar to that of 2018, even if it is somewhat distorted to the benefit of the segments that are deemed riskier (Chart 26). The production remained primarily driven by borrowers with a DSTI ratio comprised between 20% and 30%. However this segment declined from 36.8% in 2018 to 36.2% in 2019, while the share of the most indebted borrowers (DSTI ratio greater than 35%) increased from 24.8% to 26.1% and the share of the least indebted borrowers (DSTI ratio less than or equal to 20%) slightly declined from 13.2% to 13.1%.

30.3%

26%

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31%

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Chart 25 Average DSTI ratio by purpose


Chart 26 Production structure by DSTI ratio

Source: ACPR, annual survey on housing financing and monthly monitoring of the production of housing loans Among borrowers with a DSTI ratio above 35%, the buy-to-let segment remains by far the most significant one (34.2% in 2019), ahead of buyers who already own a home (27.5%), other loans (22.9%) and first-time buyers (19.5%).

(Chart 27). By contrast, the increase in the share of loans with a DSTI ratio above 35% in 2019 affects all segments, and primarily affects buy-to-let (+1.3 pt to 34.1%).

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Debt service ratio > 35%


Chart 27 Share of loans with a DSTI ratio above 35%


In 2019, the increase in the average DSTI ratio

was slightly more sustained in the Île-de-France region (+18 bps) than in the provinces (+15 bps).

At 31 December 2019, the gap in the

DSTI ratio between the Île-de-France region and the provinces reached 1.5 pts its highest level since 2013 (Chart 28).

Chart 28 Average DSTI ratio by location


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4. Average income at the time of granting rose marginally6

The average annual income of borrowers at origination increased slightly in 2019 to reach EUR 33,342 (+1.2% compared with 2018) (Chart 29), and appeared stable in the first quarter of 2020 (+0.3% in March 2020 over 12 rolling months).

The slight increase in the average income in 2019 masked contrasting developments across the various market segments. The average income of borrowers benefiting from loan

transfers is up by 2.6%. On the contrary, borrowers carrying out a buy-to-let transactions saw their average income decrease by 3.4%. The income of the

buyers of their primary residence is more stable (+2.2% for buyers who already own a home and +0.6% for first-time buyers) (Chart 30). Finally, the increase in the average income at the time of granting in 2019 was slightly faster in the Île-de-France region (+1.5%) than in the provinces (+1.1%).

Chart 29 Estimated annual average income of borrowers, expressed in EUR

Source: Banque de France ; INSEE (for median income and the 40th and 60th percentiles)7; ACPR, annual

survey on housing financing and monthly monitoring of the production of housing loans

6The ACPR does not record borrowers' incomes at the time of granting; incomes are therefore estimated on the basis of the average loan amount, the average loan duration and the DSTI ratio at the time of granting -which make it possible to calculate a repayment annuity- and on the basis of the average interest rate for new loans. All other things being equal, the estimated average income is therefore reduced if the interest rate or the average loan amount decrease, or if the average loan duration or the DSTI ratio increase. 7Latest data available: 2015

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Chart 30 Estimated annual income of borrowers at the time of granting, by purpose, in EUR


5. The LTI ratio continued to rise rapidly

Given the fact that the increase in the average loan amount is faster than that of income, the average LTI ratio - expressed in years of income- continued to rise in 2019,

for the sixth consecutive year, increasing by a further 2.5 months to reach 5.4 years, its highest level on record (Chart 31). This trend continued in the first quarter of 2020, despite a slight slowdown (+2.2 months in March 2020 over 12 rolling months).

Chart 31 Average LTI ratio expressed in number of years of income


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Main residence exclfirst-time buyersLoan transfers

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The increase in the LTI ratio can be observed for all types of acquisitions: main residences (+3.4 months, reaching 5.8 years for buyers who already own a home and +2.5 months for first-time buyers, reaching 5.8 years) and

buy-to-let (+2.9 months, reaching 5 years), for which the LTI ratio is nevertheless lower; in the case of loan transfers, the average LTI ratio shows a more moderate increase (+0.7 months, reaching 4.5 years) (Chart 32).

Chart 32 Average LTI ratio at granting according to the purpose of the loan


The average LTI ratio stabilised at 5.4 years in

the first four months of 2020, as the growing share of loan transfers in the total production offset the continued rise in LTI ratios in the other segments, especially main residences.

Finally, continuing a trend that began in

2016, the average LTI ratio continued to rise faster in the Île-de-France region (+2.9 months in 2019) than in the provinces (+2.4 months in 2019) (Chart 33).

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First-time buyers

Main residence exclfirst-time buyers

Loan transfers

Buy-to-let

Other loans


Chart 33 Average LTI ratio at granting according to location


6. LTV ratio up at origination but stable over the life of the loan

The average LTV ratio at origination continued to increase in 2019, reaching a new peak at 88.8%

(+1.5 pt), in line with the increase in the theoretical8

LTV ratio (Chart 34). Excluding loan transfers, the LTV ratio reached 89% at the end of 2019, meaning it is also on the rise compared with 2018 (+1.7 pt). The trend continued over the first four months of 2020, with the average LTV ratio reaching 89.2% in April 2020 (+1.3 pt over 12 months). The increase in the average LTV at origination in

2019 is mainly due to main residences (+2 pts reaching 85.9% for buyers who already own a home and +1.9 pt reaching 92.3% for

first-time buyers). Buy-to-let continues to show an above-average LTV ratio, albeit with a more moderate increase (+0.9 pt at 96.1%), while the LTV ratio for loan transfers recorded a slight decrease (-0,4 pt at 86.5%) (Chart 35). The increase in the average LTV ratio is

attributable to a decline in the share of loans with a down-payment rate above 15%, which has accelerated (-4.5 pts in 2019) and reached 34.5% at the end of 2019. This

decline mainly benefits over-financed9

transactions (+3 pts at 15%, their highest level since 2010) and loans with a down-payment rate comprised between 0% and

5% (+2.7 pts at 29.1%) (Chart 36).

8 The theoretical change in LTV (𝛿∗) is the ratio between the evolution of the average loan amount (𝐿) and that of the property price index (𝐼): 𝛿∗ = (𝐿 /𝐿 )/(𝐼 /𝐼 ). The difference between actual LTV variations (𝛿 = 𝐿𝑇𝑉 /𝐿𝑇𝑉 ) and this theoretical variation can be interpreted as the result of a structural effect (change in the proportion of loans with a higher-than-average LTV -where 𝛿 > 𝛿∗- or lower than average LTV - where 𝛿 < 𝛿∗) and of the evolution of the granting criteria (easing where𝛿 >𝛿∗/tightening where𝛿 < 𝛿∗), without it being possible to identify the respective contributions of the two variables. 9 Transactions where the financing granted exceeds the value of the property being financed, with the bank financing, for example, notary fees, guarantee fees, etc.

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Chart 34 Average LTV ratio at origination

Source: ACPR, annual survey on housing financing and monthly monitoring of the production of housing loans; INSEE

Chart 35 Average LTV ratio at origination, by purpose


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Average LTV (lhs)

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First-time buyers


Loans transfers

Buy-to-let

Other loans

Average LTV excl.Loans transfers


Chart 36 Production structure by down-payment rate


Finally, the average LTV ratio during the life of a loan, measured on the basis of answers to the

ACPR’s survey, decreased slightly in 2019 (-0.4 pt at 72.5%) and remained well below the LTV ratio at origination (Chart 37).

However, the significant dispersion of banks' responses on this criterion over the last three

years suggests that this average should be viewed with caution.

Chart 37 LTV ratio during the life of the loan


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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

[Q1;Q3]

LTV onoutstandingloans

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Max


Box - Recommendation No R-HCSF-2019-1

On 20 December 2019, against a background of dynamic housing loan production, looser granting criteria and, more generally, rising household indebtedness, the HCSF issued a recommendation that credit institutions and financing companies take into account the following criteria when

granting residential housing loans in France:

DSTI ratio at origination ≤ 33% AND

Maturity of loan at origination ≤ 25 years.

This recommendation comes with flexibility margins:

Up to 15% of the quarterly production of new loans may exceed either of these two thresholds;

At least three quarters of this maximum flexibility should be reserved to first-time buyers and buyers of their main residence;

With regard to loans granted under this flexibility margin, a maximum indebtedness set to 7 years of income is recommended.

To allow for a closer monitoring of the implementation of the HCSF recommendation, the ACPR’s monitoring report of the monthly production of housing loans (named “CREDITHAB”) was revised by Instruction No. 2020-I-02. The first submission deadline for the “new CREDITHAB” report, initially set on 30 April 2020, was postponed to 30 September 2020 due to the health crisis.

The data produced in this study cannot yet reflect the implementation of the recommendation by lending institutions as this recommendation was published at the very end of 2019. Early data on loan production for the first months of 2020 mentioned in the study relate mainly to transactions that were commercially initiated prior to the publication of the recommendation, which could

therefore not be taken into account in granting decisions.


1. The share of housing loans in total loans showed a slight increase

The weight of housing loans in the total credit exposures of French banks increased slightly, reaching 11.2% in June 2019 (+0.6 pt over 12 months). This figure is, however,

significantly higher for mutualist banking groups (Crédit Agricole, Banques Populaires – Caisses d’Épargne and Crédit Mutuel). For these groups, the share of housing loans represents between 14% and 18% of credit exposures (Chart 38).

Chart 38 Evolution of the weight of housing loans in France in the total credit exposure of French banks

Source: EBA, Transparency exercise 2015 to 2019; last point: June 2019

0%

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20%

BNP Paribas SA

Crédit Mutuel Group

BPCE Group

Crédit Agricole Group

La Banque Postale

Société Générale SA

Average French banks

Risks that remain contained


2. The rate of gross doubtful loans was down

The loss experience generated by housing financing remains low. In the first quarter of 2020,

quarterly defaults accounted for 0.17% of outstanding loans (Chart 39). The one-year default rate reached 0.71, its lowest level

since mid-2015. The easing of certain granting

criteria has not yet translated into a deterioration of this indicator, but the increase in borrowers' indebtedness, combined with the effects of the economic crisis, could curb this positive trend in the coming months.

Chart 39 Quarterly default rate on housing loans in France

Source: COREP statements C09.01 and C09, last point: December 2019

Gross doubtful housing outstanding loans

increased by 3.5% compared to 2018 to reach EUR 13.7 billion in 2019 (Chart 40). However, with performing loans increasing by 7% in 2019, the gross doubtful housing loan rate

declined further10 by 4 bps and stood at 1.29% at

the end of 2019. The inclusion of

doubtful loans recorded in the balance sheets of

the main guarantors does not alter this trend, as the rate of gross doubtful housing loans fell by 7 bps to reach 1.64%. Housing loans continue to show a significantly lower loss rate than all loans to non-bank customers, for which the rate of gross doubtful loans, down 16 bps, reached 2.61% (Chart 41).

10The rate of gross doubtful loans for housing loans could, however, be partly overestimated as the statements submitted by certain banks also include part of their exposure to individual entrepreneurs, whereas the doubtful loans they declare are compared to performing loans to households only here.

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Chart 40 Annual developments in the share of gross doubtful loans in housing loans


Chart 41 Gross doubtful loans on housing loans, in billions of EUR and as a % of total outstanding amounts

Source: ACPR, annual survey on housing financing and BAFI/SURFI data; the gross doubtful loans of housing loan guarantors have only been collected since 2010

The housing loan loss ratio in France11 is slightly

lower than the average for the countries covered by the EBA's last transparency exercise, and is set at the median level (Chart 42). Between 30 June 2018 and 30 June 2019, the period covered by the EBA transparency exercise, French banks’ credit default rate

decreased

by 4 bps to stand at 1.24%, slower than the

average (-32 bps at 1.45%). The decrease is general for the banks in the sample, with the most significant drops observed in the countries with the highest outstanding loan default rates: Ireland (-435 bps at 8.12%), Italy (-161 bps at 4.43%) and Spain (-43 bps at 3.91%).

11Housing loans distributed in France by all banks in the EBA sample (including foreign banks).

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Gross non-performing loansratio (rhs)


Chart 42 Evolution of the default rate on housing loans by country

Source: Transparency exercise; outstanding amounts treated using the advanced method only; Q1, Q3: first and third quartiles

All French banks covered by the transparency exercise recorded a decline in their housing

loan default rate between 30 June 2018 and 30 June 2019, with the exception of the

Crédit Agricole group (+15 bps to 1.09%), which still remains below average (Chart 43).

Chart 43 Default rate on housing loans in France as at 30 June 2019

Source: EBA, Transparency exercise (retail exposures secured by real estate, excluding SMEs; outstanding amounts treated using the advanced method); ACPR calculations on a sample of 28 banks that reported

housing loans in France (However, French banks account for 99.4% of housing loans distributed in France)

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Groupe CréditMutuel

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BNP Paribas SA

Ratio of defaultedloans (30 June 2018)Ratio of defaultedloans (30 June 2019)Average (30 June2019)Q1 (30 June 2019)

Median (30 June2019)


The rate of gross doubtful loans fell both for fixed-rate loans (down 18 bps to 1.32%) and variable-rate loans (down 89 bps to 5.25%);

(Chart 44), however, the latter appear to be more risky overall.

Chart 44 Gross doubtful loan ratio by interest rate type


Note: since gross doubtful outstanding rates per type of interest rate were calculated on a limited scale (not all respondents have provided information on this point), they cannot be directly compared with the rate of gross doubtful loans on all housing loans.

3. Provisioning ratios were relatively stable

The provisioning ratio for doubtful housing loans decreased by 1 pt to 27.7% (Chart 45), a level that remains lower than the provisioning rate observed

for all doubtful loans to non-bank customers (47.8%). This reflects the lower risk of housing loans, given the guarantees attached to it (see above).

Net doubtful loans showed a 5% increase in 2019, reaching EUR 9.9 billion (Chart 46).

Finally, the provisioning ratio for gross doubtful loans increased for fixed-rate loans (+185 bps to 21.4%) but decreased for variable-rate loans (-223 bps to 30.4%) (Chart 47).

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Fixed-rate loans Floating-rate loans


Chart 45 Provisioning ratio for doubtful outstanding loans

Source: ACPR, annual survey on housing financing and BAFI/SURFI data

Chart 46 Net doubtful outstanding loans in billion EUR


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Chart 47 Provisioning ratios for doubtful housing loans by interest rate type


Note: since the provisioning rates by type of interest rate were calculated on a limited scale (not all the banks surveyed provided information on this point), they cannot be directly compared with the provisioning rate for all housing loans.

4. The cost of risk increased

The cost of risk decreased by 21% in 2019 to

reach EUR 252 million. As a proportion of average outstanding loans, it stands at 2.4 bps in 2019, a much lower level than the overall cost of risk of the main six French banking groups, which, as a ratio of their average balance sheet total, reached 11.5 bps in 2019 (Chart 48).

For the fourth consecutive year, some institutions showed a negative cost of risk, which reflects an excess of provision reversals over new provisions or write-offs.

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Chart 48 Cost of risk of housing loans, in million EUR and as a % of the average

outstanding loan

Source: ACPR, annual survey on housing financing; financial disclosure from banks; * cost of risk of the 6 most significant French banking groups as a ratio of their balance sheet total

5. The average risk weight was above trend when adjusted taking into account secured loans

At 10.9% at 30 June 2019, the risk weight applied to housing loans distributed in France and treated using the advanced method (IRBA) stands slightly below

the first quartile of levels observed in all countries covered by the EBA's transparency exercise (Chart 49), with Swedish (4.2%) and Irish banks (35%) recording extreme values. Between 30 June 2018 and 30 June 2019, the risk weight of housing loans in France decreased by 0.4 pt (from 11.3% to 10.9%), reflecting portfolio quality improvements, especially the decline in both doubtful loans and cost of

risk. The trends are contrasted within the European sample, with opposite developments observed between Finnish banks (+5.2 pts to 15.8% following the introduction of a 15% floor rate for the weighting of residential property loans treated in IRBA) and Irish banks (-3 pts to 35%). The average risk weights, which vary across

French institutions, decreased over one year for all banks included in the sample. The Crédit Mutuel group recorded the most significant decrease (-80 bps to 10.6%) (Chart 50). These weights reflect internal measurements of the probability of default of borrowers, and of loss given default, the latter depending on the type of collateral attached to the loans.

Chart 49 Risk weights (IRBA) applied to housing loans by country of exposure as at 30 June 2019

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Source: EBA, Transparency exercise (non-SME retail exposures secured by real estate; outstanding amounts treated using the advanced method); ACPR calculations; only countries representing individually at least 1% of

the total amount of housing loans reported by all banks covered by the EBA exercise are mentioned

Chart 50 Risk-weighting applied to housing loans in France (IRBA) as at 30 June 2019

Source: EBA, Transparency exercise; ACPR calculations on a sample of 27 banks that reported housing loans concerning France

It should be noted, however, that this representation only provides a partial view of the risk-weighting rates applied to the housing loans of French banks. Indeed, these banks benefit from significant guarantees granted by entities that are themselves subject to own-funds calculation requirements. From a

prudential standpoint, guaranteed loans are thus covered by both banks and guarantors; it is therefore necessary to add up the capital requirements calculated by the two parties (bank + guarantor) in order to estimate the true risk-weight applied to housing loans.

Thus, by adding to the weighted risks on housing loans guaranteed by French banks those calculated by Crédit Logement in respect of the same outstanding loans, the average risk weight for French banks' housing loans would increase by 3.9 pts to reach 14.8% as at 30 June 2019, and would stand between the average and the median

among the various countries covered by the EBA's transparency exercise (Chart 51).

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Chart 51 Risk-weight applied to housing loans in France (IRBA) as at 30 June 2019

Source: EBA, Transparency exercise (non-SME retail exposures secured by real estate; outstanding amounts processed with the advanced method) and annual report on housing loans for 2019; ACPR calculations

6. Margins continued to decline

Despite the stability of the average cost of liabilities at 1.4% and overheads at 1.1%, the net

margin rate12 continued to deteriorate in 2019.

This arose from the rapid decline in the average

interest rate received, from 2.01% in December 2018 to 1.83% in December 2019 (Chart 52).

The production rates remained lower than the average interest rate for outstanding loans -the spread reached 61 bps in December

2019, up from 49 bps in December 2018. Therefore, the renewal of the stock of loans should continue to lower the average interest rate for outstanding loans in the coming months.

12See Box 2 of Analyses and Syntheses No. 82 for a detailed presentation of the method used for calculating margins on the outstanding amounts of housing loans.

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Chart 52 Evolution of margins on outstanding housing loans

Source: BAFI and SURFI data, all French banks; ACPR calculations

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Net margin of overheadson housing loans (rhs)

Average housing loaninterest rate (lhs)

Average liability cost(lhs)

Overhead rate (lhs)


This section analyses how risk developments observed in the various market segments (type of

transaction/beneficiary except for loan transfers

and geographical areas) excluding loan

transfers13 and geographical areas) contribute

to the evolution of average risk indicators14.

Production

Chart 53 Contribution of the various segments to changes in the production of housing loans


13Since they have recorded significant fluctuations in the past that may overshadow the contribution of other segments. 14For example, in the case of the average loan: the ”Contributions” of the various market segments measure the share of the increase in average lending in relation to each segment, assuming that the production structure per segment has remained unchanged between the two dates; the “structural effect” refers to the share of the evolution of the average indicator related to changes in the production structure (higher or lower representation for market segments with a high or low level for the indicator concerned); finally, “residual” corresponds to changes in the average indicator that are not explained by the previous two elements.

-40%

-30%

-20%

-10%

+0%

+10%

+20%

+30%

Dec

-11

Apr

-12

Aug

-12

Dec

-12

Apr

-13

Aug

-13

Dec

-13

Apr

-14

Aug

-14

Dec

-14

Apr

-15

Aug

-15

Dec

-15

Apr

-16

Aug

-16

Dec

-16

Apr

-17

Aug

-17

Dec

-17

Apr

-18

Aug

-18

Dec

-18

Apr

-19

Aug

-19

Dec

-19

Apr

-20

Other loans

Buy-to-let

Main residenceexcl. First-timebuyers

First-time buyers

New housingloans yoychange

Annex 1 - Analysis of the evolution of granting criteria


Average loan

Chart 54 Contribution of the various segments to the evolution of the average loan


Chart 55 Contribution of the Ile de France region and the Provinces to the annual evolution of the average loan


-10 k€

-5 k€

0 k€

5 k€

10 k€

15 k€

20 k€

Residual

Structure effect

First-time buyers

Main residence exc.First-time buyers

Buy-to-let

Other loans

Average loan amountyoy change

-10 k€

-5 k€

0 k€

5 k€

10 k€

15 k€

20 k€

Residual

Structure effect

Île de France

Rest of France

Average loan amount yoy change


Initial maturity

Chart 56 Contribution of the various segments to the annual evolution of the initial maturity of the average loan


Chart 57 Contribution of the Ile de France region and the Provinces to the annual

evolution of the initial maturity of the average loan


-0.8 yrs

-0.6 yrs

-0.4 yrs

-0.2 yrs

+0.0 yrs

+0.2 yrs

+0.4 yrs

+0.6 yrs

+0.8 yrs

+1.0 yrs

Residual

Structure effect

First-time buyers

Main residence exc.First-time buyers

Buy-to-let

Other loans

Average initialmaturity of loan yoychange

-1.0 yrs

-0.5 yrs

+0.0 yrs

+0.5 yrs

+1.0 yrs

+1.5 yrs

Residual

Structure effect

Ile de France

Rest of France

Average maturity ofloan yoy change


DSTI ratio (Debt Service To Income)

Chart 58 Contribution of the various segments to the annual evolution of the average DSTI ratio


Chart 59 Contribution of the Ile de France region and the Provinces to the annual evolution of the average DSTI ratio


-100 bps

-80 bps

-60 bps

-40 bps

-20 bps

+0 bps

+20 bps

+40 bps

+60 bps

+80 bps

+100 bps

Residual

Structure effect

First-timebuyers

Main résidenceexcl. First-timebuyersBuy-to-let

Other loans

-100 bps

-80 bps

-60 bps

-40 bps

-20 bps

+0 bps

+20 bps

+40 bps

+60 bps

+80 bps

+100 bps

Residual

Structure effect

Île de France

Rest of France

Average debt serviceratio yoy change


Chart 60 Contribution of the various segments to the annual evolution of the share of loans with a DSTI ratio above 35%


Average income

Chart 61 Contributions of the various segments to the annual evolution developments

in average annual income of borrowers


-400 bps

-300 bps

-200 bps

-100 bps

+0 bps

+100 bps

+200 bps

+300 bps Residual

Structure effect

First-time buyers

Main residence excl. First-timebuyers

Buy-to-let

Other loans

yoy change in the share of newloans with a DSR > 35% atorigination

-2 000 €

-1 000 €

+0 €

+1 000 €

+2 000 €

+3 000 €

+4 000 €

+5 000 €Residual

Structure effect

First-time buyers


Buy-to-let

Other loans

yoy change inborrower's annualrevenue at origination


Chart 62 Contribution of the Ile de France region and the Provinces to the annual evolution of the average annual income of borrowers


LTI ratio (Loan To Income)

Chart 63 Contribution of the various segments to the annual evolution of the average LTI ratio


-2 000 €

-1 000 €

+0 €

+1 000 €

+2 000 €

+3 000 €

+4 000 €

De

c-11

May

-12

Oct

-12

Ma

r-13

Au

g-1

3

Jan

-14

Jun

-14

No

v-14

Ap

r-1

5

Se

p-1

5

Feb

-16

Jul-1

6

De

c-16

May

-17

Oct

-17

Ma

r-18

Au

g-1

8

Jan

-19

Jun

-19

No

v-19

Ap

r-2

0

Residual

Structure effect

Contribution of Île deFrance

Contribution of Rest ofFrance

yoy change in borrower'sannual revenue atorigination

-0.2 yrs

-0.1 yrs

+0.0 yrs

+0.1 yrs

+0.2 yrs

+0.3 yrs

+0.4 yrs

Residual

Structure effect

First-timebuyers

Main residenceexcl. First-timebuyersBuy-to-let

Other loans

Average debtratio yoy change


Chart 64 Contribution of the Ile de France region and the Provinces to the annual evolution of the average LTI ratio


LTV ratio

Chart 65 Contribution of the various segments to the annual evolution of the average

LTV ratio


-0.10 yrs

-0.05 yrs

+0.00 yrs

+0.05 yrs

+0.10 yrs

+0.15 yrs

+0.20 yrs

+0.25 yrs

+0.30 yrs

+0.35 yrs

+0.40 yrs

Residual

Structure effect

Condribution Ilede France

ContributionRest of France

Average debtratio yoy change

-500 bps

-400 bps

-300 bps

-200 bps

-100 bps

+0 bps

+100 bps

+200 bps

+300 bps

+400 bps

De

c-1

1

Apr

-12

Aug

-12

De

c-1

2

Apr

-13

Aug

-13

De

c-1

3

Apr

-14

Aug

-14

De

c-1

4

Apr

-15

Aug

-15

De

c-1

5

Apr

-16

Aug

-16

De

c-1

6

Apr

-17

Aug

-17

De

c-1

7

Apr

-18

Aug

-18

De

c-1

8

Apr

-19

Aug

-19

De

c-1

9

Apr

-20

Residual

Structure effect

First-time-buyers


Buy-to-let

Other loans

Average LTV yoychange


Chart 66 Contribution of the Ile de France region and the Provinces to the annual evolution of the average LTV ratio


Chart 67 Contribution of the various segments to the annual evolution of the share of transactions that gave rise to overfunding


-500 bps

-400 bps

-300 bps

-200 bps

-100 bps

+0 bps

+100 bps

+200 bps

+300 bps

+400 bps

+500 bps

+600 bps

Residual

Structure effect

Île de France

Rest of France

Average LTVyoy change

-600 bps

-500 bps

-400 bps

-300 bps

-200 bps

-100 bps

+0 bps

+100 bps

+200 bps

+300 bps

+400 bps

Residual

Structure effect

First-time buyers

Main residence excl first-time buyers

Other loans

Yoy change in negativeequity loans


Although outstanding housing loans have grown almost uninterruptedly since June

2000, the total amount of interest received by banks, which had been following a similar trend or even growing faster, has been falling since the end of 2012 (Chart 68).

This drop in the amount of interest on housing loans shows that stock growth

(volume effect) is not sufficient to halt the decline in the average rate of return on outstanding loans (interest rate effect: Chart 69).

Chart 68 Evolution of outstanding housing loans and the amount of interest received by banks (expressed in billion EUR)


15

20

25

30

35

40

45

200

400

600

800

1 000

1 200

1 400

Averageoutstanding housingloans

Interest on housingloans

Annex 2 - Evolution of housing loan margins


Chart 69 Factors underlying the evolution of the amount of interest received by banks for housing loans


Another point of interest is the analysis of the impact of depreciation, the production and new loan rates on the evolution of the amount of interest received by banks: specially, the

significant surge in loan transfers in the second half of 2016, which cut their remuneration by almost 7% (Chart 70).

In this context, net margins on outstanding amounts of housing loans continued to deteriorate in 2020, falling back to their June 2002 level at -0.69% (Chart 71).

Chart 70 Impact of depreciation, production and new loan interest rates on the amount of interest received by banks for housing loans


-20%

-15%

-10%

-5%

+0%

+5%

+10%

+15%

+20%

+25%

Volume effect

Rate effect

Change in amount ofinterest on housingloans

-10%

-5%

+0%

+5%

+10%

+15%

New loan rates effect

Production effect

Depreciation effect


Chart 71 Evolution of margins on outstanding housing loans

Source: BAFI and SURFI data, all French banks; ACPR calculations As before, the decrease in the average interest rate of outstanding housing loans continued to drive margins down. This trend was amplified in the second half of 2019 by the increasing cost of financing (Chart 72).

The decline in the average interest rate of outstanding housing loans reflects the fact that the interest rates applied to new loans remain below stock return (Chart 73).

Chart 72 Factors underlying the evolution of margins on the stock of outstanding housing loans


-1,2%

-0,9%

-0,6%

-0,3%

+0,0%

+0,3%

+0,6%

+0,9%

0%

1%

2%

3%

4%

5%

6%

7%

Net margin ofoverheads on housingloans (rhs)

Average housing loaninterest rate (lhs)

Average liability cost(lhs)

Overhead rate (lhs)

-0,8 pp

-0,6 pp

-0,4 pp

-0,2 pp

+0,0 pp

+0,2 pp

+0,4 pp

+0,6 pp

+0,8 pp

+1,0 pp

+1,2 pp

+1,4 pp

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-19

Of which change in generalexpenses

Of which changes in the cost ofliabilities

Of which changes in the loan ratio

Change in net margin


Chart 73 Average interest rate on housing loans and interest rates applied to new housing loans


Individual mark-ups continue to show significant variations across institutions (Chart 74). The difference between the simple and the weighted average shows, however, that the lowest

margin rates are mainly found in institutions with a limited stock of outstanding loans.

This variability stems from differences in both the average cost of liabilities and the average overhead rates (Chart 75), while the average interest rates on outstanding housing loans

appear more homogeneous.

Chart 74 Mark-ups applied to outstanding housing loans per institution


0%

1%

2%

3%

4%

5%

6%

Average interest rate onoutstanding housing loans

New loans rate of thesemester

-3,0%

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

+0,0%

+0,5%

+1,0%

Q1-Q3

Weighted average

Simple average


Chart 75 Distribution of mark-up components per institution

a: Average interest rate on outstanding housing

loans

b: Average cost of liabilities

c: Overhead rate


0%

1%

2%

3%

4%

5%

6%

7%

8%

Weighted average

Simple average

0%

1%

2%

3%

4%

5%

6%

7%

8%

Weighted average

Simple average

0%

1%

2%

3%

4%

5%

6%

7%

8%

Weighted average

Simple average


The CREDITHAB reporting system dedicated to the monthly production of housing loans has

been modified in order to allow for a closer monitoring of the implementation of HCSF recommendation No. R-HCSF-2019-1. Since the HCSF's recommendation applies to all institutions distributing housing loans with no minimum outstanding loan threshold being mentioned, the pool of reporting institutions is therefore broadened to include all those for which customer transactions (including leasing)

exceed a threshold set at EUR 30 million or 20% of total assets and liabilities (in line with the reporting rules applied to SURFI tables for the customer activity block).

It should be noted that the new CREDITHAB reporting system is also intended to address a

number of recommendations issued by the European Systemic Risk Board (ESRB), which published a recommendation (No 2016/14) at the end of 2016, supplemented in 2019 by Recommendation No 2019/3, aimed at filling the data gap in the areas of residential and commercial property by the end of 2020. The first submission deadlines for the new CREDITHAB reporting statement are as follows:

- Institutions already submitting the former

CREDITHAB statement: 30 September 2020;

- Other institutions: 1 July 2021.

Annex 3 - Evolution of the monthly monitoring of the production of housing loans


Original maturity: for a given year of production, the average original maturity as laid down in the loan contracts, weighted by outstanding amounts. Loan to profit or LTV ratio:

- At origination, the LTV ratio is the ratio between the principal loan amount and the purchase value of the house, excluding transfer and/or acquisition rights; it can also be defined as the difference between 1 and the borrower's contribution rate. Institutions report the average LTV ratio per transaction weighted by the amount of housing loans granted during the period.

- During the life of the loan, the LTV ratio is equal to the ratio of the outstanding capital to the market value of the funded property. This information has been collected since the redesign of the annual housing financing survey in 2012.

Residual maturity: remaining term of a loan until maturity, in accordance with the terms of the contract. Loan transfer: transaction at the end of which a bank repurchases a given loan from a borrower from a competing bank; since loan transfers give rise to a new loan (by the bank that repurchases the loan), they are included in the (gross) production of housing loans measured by the ACPR; however, they have no impact on net production15 insofar as the amount

of the newly issued loan is immediately cancelled out by the amount of the repayment made by the borrower to his bank that originated the first loan. Renegotiation: transaction at the end of which the borrower obtains a change in the terms of the loan contract, change that may include the interest rate. Renegotiations, which do not result in the disbursement of a new loan, and should therefore not be reported by banks in the context of the monthly monitoring on the production of housing loans by the ACPR, are counted in the production of housing loans as measured by the Banque de France, insofar as they lead to the issuance of a new contract. Average income of borrowers at granting: it is estimated (proxy) as follows:

- As a first step, for a given year or month, the amount of repayment annuities is estimated for a loan with an average amount, duration and interest rate; in 2019, for example, on the basis of a loan of EUR 179,050, with an initial maturity at 20,3 years and at a (fixed) interest rate set to 1,35%, the annuities on this loan with average characteristics amount to EUR 10,094;

- As a second step, the amount of this annuity is measured in relation to the average DSTI ratio in order to obtain an estimate of the average income of borrowers at origination; in 2019, based on an average DSTI ratio established at 30.3%, an average income was derived equal to EUR 33,346.

15For a given period, net production is defined as the difference between new contracts issued and recorded depreciation (either contractual or anticipated).

Annex 4 - Glossary


This calculation may slightly underestimate borrowers' income at the time of granting insofar as the denominator (the average DSTI ratio) takes into account all the debts that the borrower has to repay, whereas the numerator (the annual instalment) only takes into account that borrower's housing debt; nevertheless, in aggregate form, housing loans to individuals distributed in France represented the vast majority of the stock of loans to individuals at the end of 2017 (see above). DSTI ratio at granting: it includes, as the numerator, all recurring expenses of borrowers (including repayments of all their loans) and, as the denominator, all their income received.

Loan to income ratio: it is defined as the ratio between the average loan amount at origination and the annual income of the borrower at the same date. The LTI ratio thus represents the number of years of income needed to repay a housing loan.

Documents

AS 114 financement habitat 2019 Version anglaise