N° 160 : Housing financing in 2023

• Between the fourth quarter of 2022 (Q4 2022) and Q4 2023, the INSEE index of prices for existing homes fell by 3.9% in metropolitan France (compared with an increase of 4.5% in 2022), with differences in magnitude between the provinces (-2.9%) and the Île-de-France region (-6.9%; Chart 1). The number of annual transactions stood at 869,000, a 22% decline compared with 2022 (Chart 2);

• Most of the increase in market interest rates was reflected in housing loan rates, which reached 4.04% in December 2023 (+1.92 pt compared with December 2022), their highest level since march 2012 (Chart 4). This level nevertheless remains lower in France than in other major euro area markets (Chart 3); 

• The annual production of housing loans amounted to €152.9 billion in 2023, a 41.1% drop compared with 2022 (Chart 6), thus reverting to the levels observed in 2014 / 2015 before the period of exceptionally low interest rates;

• Excluding loan transfers and renegotiations, the production of new loans reached €128.6 billion in 2023, down 40.9% from 2022. Relative to GDP, it stands above the euro area average (5% vs. 3.5%; Chart 8);

• The share of loan transfers and renegotiations in total home loan production remained almost stable (15.9%, -0.2 pt compared with 2022; Chart 9);

• The share of bridge loans has continued to increase (+0.7 pt at 7.3%; Chart 14), including an increase in extended bridge loans (Chart 15);

• Outstanding housing loans in France grew by 0.9% over the year, compared with 5.5% a year earlier (Chart 10), while total loans to individuals resident in France grew by 1.2%;

• Finally, loans for the acquisition of a principal residence remain largely predominant: they accounted for 78.9% of new loans (excluding bridge loans) in 2023, up 2.4 pts compared with 2022, on account of the increase in the share of loans to first-time buyers (+3.5 pts at 42.6%; Chart 12).

The start of 2024 is marked by more favourable developments. The adjustment of prices for existing homes in metropolitan France continued (-5.2% between Q1 2023 and Q1 2024). Interest rates on new housing loans have fallen significantly (3.83% in May 2024, down by 0.34 pt from the peak reached in January 2024), while production of new housing loans has gradually picked up as of April.

The level of indebtedness of French households has declined for the first time in nearly 25 years but remains higher than the levels observed in other European countries: in December 2023, it reached 97% of gross disposable income (Chart 21), 5 pts lower than in December 2022, but still well above the euro area average (88%), which fell more rapidly (-5.9 pts compared with December 2022).

Developments in household indebtedness, combined with the general loosening of credit standards, prompted the French macroprudential authority (HCSF) to transform the recommendation issued in late 2019 into a binding macroprudential standard from January 2022, contributing to the improvement of several lending criteria. The data collected by the Autorité de contrôle prudentiel et de résolution (ACPR) show that the share of riskier loans in new loan production remains below the levels observed in 2020:

• The share of loans to households with a Debt-Service-to-Income (DSTI) ratio above 35% stood at 14% in 2023, slightly up by 0.3 pt compared with 2022 but still far below the level observed in 2020 (29.3%) (Chart 35), despite the increase in interest rates;

• The share of loans with maturities exceeding 25 years stood at 6.7% in 2023, slightly up by 0.7 pt compared with 2022 but still significantly lower than the level observed in 2020 (10.7%) (Chart 29).

Furthermore, these developments were associated with a decline in the share of loans for which the loan-to-value (LTV) ratio exceeds 100%: at 16.6% at end-2023, this indicator is down 6.3 points compared with 2022 and 12.4 points compared with 2020 (Chart 43). 

As a result, the share of loans that exceed the thresholds set out in the HCSF decision reached 15.4% overall in Q4 2023, significantly lower than the 20% flexibility margin allowed by the decision (Chart 45).

In 2023, the average lending criteria for new loans have evolved as follows (annual data):

• The average loan amount decreased by 6.3% year-on-year to reach €196,800 (Chart 22), reflecting the declining borrowing capacity of some borrowers. 

• The average duration stabilised, with a slight increase of 1.8 months to 22.3 years, (Chart 25). 

• The average DSTI ratio increased, by 0.7 pt to 30.7% (Chart 31), reflecting the increase in the interest expense.

• The decline in the average loan value combined with the stabilisation of the average duration, led to a marked decline in the debt-to-income (DTI) ratio (-6 months to 4.6 years of income), although this indicator does not include the interest expense (Chart 36).

• The decline in the average LTV ratio at origination accelerated (-4.3 points at 78.8%), reflecting a stronger mobilisation of savings in the financing of new transactions (Chart 39).

In the first months of 2024, we observed a continued decline in the average loan amount, in the average DTI ratio and in the average LTV ratio, while other indicators (average duration, DSTI ratio) also marked a downward inflection. Between Q4 2023 and Q1 2024 (quarterly data):

• The average loan amount continued to decline, by 4.9% to €175,500.

• The average duration decreased slightly to 22.1 years (-0.7 months).

• The average DSTI ratio fell by 0.2 pt to 30.7%, while the share of loans with a DSTI ratio above 35% is almost stable (+0.1 pt at 15.3%).

• Both the DTI ratio and the average LTV ratio declined (by 1.4 months at 4.3 years and by 1.7 points at 75.8% respectively).

The French housing loan market still benefits from sound fundamentals. In particular:

1. Loans are granted almost exclusively at a fixed rate (99% of production on average in 2023), thus limiting the risks linked to rising interest rates on the creditworthiness of borrowers (Chart 16 and Chart 17);

2. The granting policy is based on the assessment of the borrower’s creditworthiness and not on the market value of the financed property, thus limiting financial amplification. Regulating the DSTI at the time of granting by the HCSF for 80% of production also limits the pressure in this area.

3. Almost all outstanding loans (97%) are covered by a guarantee, notably a third-party guarantee or a mortgage, which limits losses for banks in the event of a borrower default (Chart 19); mortgages account for a minority share of total outstanding loans, which reduces the risk of a contagion that would result from a fast deterioration of borrowers’ solvency on market prices.

Overall, the risks remain contained, as evidenced by the low delinquency:

• 12-month defaults represented 0.44% of the outstanding amount at Q4 2023, i.e. almost unchanged (+0.04 pt compared to Q4 2022; Chart 48);

• As at 31 December 2023, the ratio of doubtful loans was almost stable at 0.97% (+0.02 pt compared with 31 December 2022) (Chart 50). Based on international comparisons (European Banking Authority's transparency exercise), the default rate on housing loans granted by French banks is between the first quartile and the median (Chart 51).

• The cost of risk remains very limited: it represents 1 basis point (bp) of the average outstanding amount of housing loans (Chart 58) in 2023.

This low level of losses is reflected in the risk weights measured by banks’ internal models for calculating their solvency ratio. From a structurally low level, average weights declined slightly (-0.4 pt over 12 months to 9.8% in June 2023). To compare these average risk weights with other European banks, the regulatory requirements applicable to guarantors on the same outstanding amounts should be factored in. A partial calculation can be made taking into account the risk coverage by Crédit Logement, which is also subject to prudential banking regulations. On this basis, the average weighting of outstanding housing loans granted by French banks is between the average and the median of European banks. This suggests that the capital coverage of French housing loans is broadly comparable to that observed in the other main European countries (Chart 59).

The data collection set up at the request of the HCSF to monitor housing loan pricing shows that loan margins at origination were negative but recovered in 2023 (Chart 61). This was due to a stronger increase in lending rates, which went up from 1.79% on average in Q4 2022 to 3.72% in Q4 2023, (i.e. an increase of 1.93 pt), while refinancing cost measured on the basis of fund transfer prices (FTP), went up from 3.10% on average in Q4 2022 to 4.08% in Q4 2023 (i.e. an increase of 0.98 pt). This recovery was confirmed in Q1 2024, when equilibrium margins were restored for the first time in two years.