MP Lionel Causse Proposes New Mortgage Lending Criteria to Curb Loan Rejections

French Member of Parliament Lionel Causse has introduced a legislative proposal to revise the criteria for granting mortgage loans, aiming to reverse a trend of increasing loan refusals. The proposal seeks to loosen the restrictive rules imposed by the Haut Conseil de Stabilité Financière (HCSF), which could potentially unlock up to 15% of loans that are currently being denied.

The central objective of the initiative is to remove the strict 35% maximum debt-to-income ratio currently enforced by the HCSF. By removing this cap, the proposal intends to return the authority to individual banks to assess the creditworthiness of borrowers based on their specific financial situations.

Reintroducing Residual Income Assessment

A key component of the proposal is the reintroduction of reste à vivre, or residual income. This metric focuses on the actual amount of money a household has remaining for living expenses after all debt payments have been made, rather than relying solely on a fixed percentage of gross income.

CNCEF CRÉDIT, a professional association of mortgage brokers, has expressed support for the measure. The organization argues that banks possess the necessary tools to evaluate excessive debt risks and that focusing on residual income provides a more factual basis for financing home ownership.

Proposed Structural Reforms to the HCSF

Beyond the technical lending criteria, the proposal suggests structural changes to the HCSF to increase its democratic legitimacy. The plan involves expanding the composition of the council to include parliamentary representation, specifically adding one member from the Senate and one member from the National Assembly.

Supporters of the reform argue that broader representation within the council would allow the body to better align its regulations with the practical realities faced by borrowers and lenders on the ground.

Economic Context and Market Impact

The push for deregulation comes as the French mortgage market struggles with the impact of rising interest rates, which began increasing in the summer of 2022. This environment has led to a significant contraction in lending; one report indicates a 40% drop in the granting of mortgage loans.

Data provided by CNCEF CRÉDIT shows that mortgage credit production reached 8.7 billion euros in November 2023, a level comparable to the period before 2015. However, the association maintains that the current HCSF restrictions act as a barrier to potential borrowers who are otherwise solvent.

Institutional Resistance

Despite support from the Ministry of Economy and Finance, the proposal has faced significant opposition from major financial regulators. Both the Banque de France and the European Central Bank have rejected the measure.

The resistance from these institutions reflects a tension between the desire to stimulate the real estate market and the goal of maintaining financial stability by preventing excessive household indebtedness.