The majority of real estate loans are secured by a surety. According to the latest figures from the French Prudential Supervisory and Resolution Authority (ACPR), this proportion has been rising for several years.
Three out of five loans secured by a surety
In fact, the first place of the deposit is not really new, but rather a confirmation. A previous study by the ACPR (the constable of banks and insurers) dated 2010 already noted that bonds guaranteed more than 50% of mortgages.
Since then, the proportion has stabilized before increasing from 2014, to represent 58.3% in 2016 (+ 1.6% over one year) of outstanding home loans. By type of institution, credit institutions are the primary source of guarantees, at 34.6% (+1.1 point), ahead of insurance companies (23.7%, + 0.5%). But these tend to progress uninterrupted since 2010.
How does the deposit work? In case of payment difficulties, an organization bears the cost of repayment of the mortgage. In return, the deposit involves the payment of guarantee fees. Under Credit Longert, the costs are divided into two parts: the first, a commission paid to the surety company; the second, participation in a Mutual Guarantee Fund (FMG). At the end of the repayment period, the amount allocated as part of the participation in the FMG is returned to the borrower.
The mortgage behind the bond
Mechanically, if the share of bonded loans increases, that of other guarantees loses ground. And notably the real guarantees, namely mortgages and denier lending privileges (PPD) which weigh only 30.3% of outstanding mortgage loan.
Why this decline? The ACPR does not provide an explanation, but the reasons are obvious. For the bank, the formalities related to the deposit are more flexible and fast. In case of difficulties of payment of the borrower, the monthly payments are covered by the bonding agency, while with the mortgage, the property must be sold for the bank to be repaid.
For the borrower, the deposit represents a lower cost than the mortgage. And it recovers a portion of the funds invested, provided that no payment incident occurs during the repayment of the loan.
Do not confuse collateral and mortgage insurance
These are two different elements in the constitution of a mortgage. Real estate loan insurance comes into play when the borrower is the victim of an “accident of life” (death, disability, job loss…) preventing him from repaying his credit.
The guarantee takes over when the payment incident does not fall under the conditions stipulated by credit insurance.