Banks are increasing the supply of mortgage loans over very long periods. As a result, an increasing number of young borrowers are able to access property.
The disappearance of APL accession and the number of beneficiaries of the falling zero rate loan leads banks to offer offers over very long periods. The purpose of lending institutions is to finance the real estate acquisitions of first-time buyers.
An advantage for young first-time buyers
Thus, for young buyers who wish to become the owner of their main residence, this type of offer makes it possible to reduce the sum of the monthly payments so as not to exceed the debt ratio set at 33% of income. For modest assets with incomes between 1,500 and 2,000 dollars per month, these offers of long-term mortgage loans therefore represent a real bargain. A simulation carried out by a specialized broker reveals that a couple wishing to acquire a property of 300,000 dollars in Parisian inner suburbs, with a contribution of 10% and income of 4,000 dollars net per month will be well advised to take out a loan on a significant duration.
Indeed, it will be impossible to borrow over a period of 20 years because the debt ratio would be 38%. Over 25 years, the file would just pass, with a debt of 33% and monthly payments of 1,321 dollars. However, it is with a term of 30 years that the couple of borrowers would have more room for maneuver and a correct debt ratio at 31% for monthly payments of 1,231 dollars. However, over these long periods, interest rates are much higher and the cost of credit increases by more than half, reaching 143,026 dollars, against 66,720 dollars over 20 years.
A significant cost of credit
The cost of credit over 30 years can put off more than one borrower. However, engaging in a home loan does not necessarily mean keeping it until maturity. Indeed, the real duration of a mortgage for a first-time buyer varies between 5 to 7 years.
Most households keep their property for a few years before reselling it by realizing a gain in order to acquire a higher quality property at a more advantageous rate. This limited duration therefore means that the cost of credit is only partially borne. However, it will be necessary to think carefully before embarking on such an operation, because during the first years, the borrower mainly reimburses only interest. A real estate loan repurchase transaction could also be considered if the borrower subsequently has several loans of different types (car loans, works, etc.) that he wishes to group together in order to benefit from a single monthly payment. This operation can be used to review the initial term of the loan, if the borrower’s income has changed.