Real Estate Loan: hardening conditions?
Banks are selective about granting a mortgage, especially on long terms, bridging loans and 110% loans.
Real Estate Loan – End of Long Term?
Banks do not lend much more mortgage loans beyond 25 years, and when they do, the rate is necessarily dissuasive. Since the beginning of the year, it is more difficult to borrow for long periods. Some banks have decided to no longer lend over 30 years, simply to refuse files over periods longer than 25 years or have significantly increased the rate to limit the flow of records.
Optimizing the loan setup
Mixed rate loan This type of loan is fixed for a given period (5, 7, 10 or 15 years), then revisable afterwards, most often capped 2. The customer then benefits from a lower rate that allows him to shorten the duration of his loan. This loan avoids the risk of a rise in the interest rate during the first years, years during which the interest to be repaid is the highest. This formula is very interesting for first-time buyers who have a high probability of selling their property before 7 years.
Evolutionary Loan Some banks offer a so-called “scalable” loan that is well fixed rate throughout the life of the loan, but which is accompanied by an automatic maturity adjustment of 1% per annum. As a result, the initial monthly payment , from which the debt ratio is calculated, is lower, which makes it possible to borrow more or reduce the duration of the loan.
Some institutions no longer accept files without contribution or encourage people to sell before buying a new property, this to avoid the excesses of the bridge loan.
Sell before buying!
Banks are very cautious in granting a bridging loan allowing an individual to finance a new purchase before selling his property. They tend to downgrade the valuation of assets. Their worries about the evolution of the residential market push them to reduce the amount of the credit relay granted compared to the amount of expertise which often prevents the borrowers to invest again.
A single credit covering the entire project taking over the old loan and financing the new property. The client is 2 years old to sell his property in the best possible conditions. Once the sale is made the customer has the opportunity to keep up to 20% of the amount of the sale or reinject the entire sale in its loan which allows it to either reduce the duration or the monthly payment.
With or without input?
The most obvious consequence of the tightening of mortgage loans is therefore felt by borrowers with only limited initial capital (personal contribution or first acquisition). The time has passed when it was easy to borrow over 30 years with a personal contribution covering only ancillary costs (notary, guarantee, etc.). The time now seems to be shifted to “zero risk” for banking institutions in which the sovereign debt crisis and the requirements of the new European regulations (Basel III) are heavily felt. Banks are relying almost exclusively on mature acquisition projects guaranteed by surety companies.