Relay loan or resale purchase: these solutions for acquiring new real estate

The bridging loan allows borrowers to buy new housing before selling the current one. A solution that frightens some, fearing that the resale will not materialize quickly. The point on this complex loan, in question.

How much can the bank advance?

How much can the bank advance?

The amount of the bridging loan is calculated according to the value of the property to be sold. In general, it represents 50% to 70% of the value of the property, says the French Banking Federation (FBF) in a dedicated guide. There is no intangible rule: several brokers mentioning the possibility of climbing to 80% of the value of the property.

This can be 60% in an area where sales are difficult, and this easily rises to 80% in Paris, Bordeaux or Lyon where the real estate market is extremely dynamic, judge Mal Bernier, spokesperson for Meilleurtaux. The fact that a sales agreement is signed also makes it possible to approach 70% or even 80% of the value of the property.

Precision: this percentage means minus the capital remaining due. More specifically, if you still repay the loan for the initial home, the amount of the bridging loan will be less. Logical: This loan is only intended to advance the money that you will receive when selling your property.

For a house with a value of 250,000, on which you have 150,000 to be reimbursed, you can obtain a bridging loan of 70,000. That is to say 70% of the proceeds of the sale that you can cash (100,000), the rest being used to repay the balance of your credit.

Who estimates the value of your property?

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The bank grants the bridging loan. Banks are increasingly asking for a double estimate responsible for the development of Good Credit. They often request at least one estimate from the notary, followed by internal expertise. This procedure can generate administrative costs, up to 300 euros, but they are included in the bridging loan.

What rate and what duration for a bridging loan?

1.40% to about 1.60%, for bridging loans with an initial duration of 1 to 2 years, according to Ocane Gridel, from Good Credit. By way of comparison, in this fall of 2019, the average mortgage rate is around 1.25% for a conventional bank loan over a period of 20 years, and slightly below 1.50% over 25 years.

What are the different bridging loan formulas?

Three relay credit formulas are possible. The first: the loan relay dried up, without any other associated credit. This formula is particularly preferred by seniors or no-retirees who settle in smaller and cheaper accommodation or leave a big city for a coastal or rural area.

Second possibility: the loan relay associated with a classic real estate loan. The latter will then finance the purchase of a property worth more than the current accommodation. This is the most common form of bridging loan, with a dedicated short-term credit (the relay), and long-term credit.

A bridging loan associated with a classic credit

A bridging loan associated with a classic credit

A couple bought an apartment 220,000 in 2015: they took out a loan of 180,000 at 2.20%: with borrower insurance, their monthly payments are 829.

Since then, the value of the property has increased to 250,000 and their wages have increased (3,000 per month each). They target a house with a value of 350,000, which represents an operation of 376,000 with notary fees, which will also be added to the warranty costs. (2080).

The broker Good Credit made a simulation of a relay loan for this couple. The bank grants a bridging loan at 1.40% of 64810: this is the value of the apartment for sale 250000 minus the credit remaining to be reimbursed ( 157413), funded at 70%.

This couple, therefore, signs a bridge loan of 64810 over 1 year and a classic bank loan, at 1.20% over 20 years, of 313311 to finance the purchase of their house. Monthly payment before resale: 923.52. A monthly payment that integrates borrower insurance for new loans and the interest of the relay.

When they manage to sell their apartment, the initial loan, as well as the bridging loan, will be settled. This couple will have 27,777 of surplus, which can then be saved or used for work. After the resale, only the classic bank loan will remain, the monthly payments of which will be 1,564.98.

Student loan: how to finance your studies at less than 1%

After taking into account the possible aids, students on average need an additional 840 euros per month to live. In the absence of savings or sufficient income, it is difficult to ignore the student loan to continue his education. What steps does it require? What rates do banks apply? Can the banker control the use of credit?

In a few weeks, the students will be back. If the registration fees for the university remain within the reach of most students – the fees for this year are $ 170 for license registrations, special training Or even access to private establishments are much more expensive, like business schools, which over the entire schooling period can amount to more than 40 $ 000.

Under these conditions and without a financial boost

Under these conditions and without a financial boost

It can be difficult to access the course of your choice. Especially since it is not the only source of expense inherent in student life.

All charges combined – accommodation, food, equipment or the contribution to student life which has replaced social security costs for the past year – and after deduction of the aid received – grants and housing aid in particular -, the remainder to be paid for students averages 838 euros per month, according to the National Union of Students of France (UNEF). An amount that cannot always be taken care of by the family.

According to the latest barometer devoted to family support, the French pay their average adult children 184 euros monthly (1). Similarly, student or seasonal jobs are rarely enough to make up the difference. They report on average less than 200 euros per month, according to the Good Finance Observatory of new consumption published in early July (2).

As a result, many students push the door of their bank branch to make a credit. According to the study carried out in September 2018 by E-Money, 4 young people out of 10 take out a student loan of 10,000,000 euros on average (3). As a loyalty issue, banks in principle welcome this clientele with open arms. Not very profitable at first, the students of today will indeed be those who, tomorrow, will apply for a mortgage or will invest their savings.

A cash credit with no income obligation

A cash credit with no income obligation

In fact, banking establishments are not reluctant to grant loans of several tens of thousands of euros, under very favorable conditions. In this period during which students prepare for their return, the brands are even competing fiercely over the student loan with promotional offers.

As proof, after a review of the main banking establishments, the proposed call rates vary from 0.80% to 1% of fixed APR, excluding optional insurance. These low-interest rates most often go hand in hand with free application fees. Debt conditions, therefore, appear to be really attractive given the profile of borrowers The latter generally do not have a regular income.

However, banks protect themselves from the risk of non-repayment by requesting a parental deposit. In other words, the parents agree to reimburse instead of their child if the child cannot cope with the deadlines. In theory, the guarantor’s role can also be assumed by another close relative (brother, sister, uncle and aunt …) if the bank accepts it.

In addition, the rates proposed to the student clientele also seem very favorable in view of the nature of this loan. The student loan is indeed an unallocated credit, which therefore does not need to justify the use of funds. Young people can use this money as they see fit: pay for university, buy a car, a computer or finance the rental of accommodation. Usually, banks reserve their best offers rather than borrowers proving that the loan will be used for a precise and defined project, like the purchase of a vehicle or the r Realization of works.

Conditions of eligibility for student loans

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To obtain a student loan, the young adult must still meet a few conditions. Logically, he must have student status! That is to say being enrolled in a higher education establishment, whatever it is: major schools, BTS, IUT, universities. Besides, the banks will ask the student for documents attesting to his registration: photocopy of the student card or certificate of education.

Another constraint, the candidate for the loan must be of age. However, some banks, such as Good Lender, extend accessibility to minors aged at least 16 years. In addition, although there is no age to start or resume studies, credit institutions generally reserve the student loan for less than 30 years. In principle, after 27 or 28 years, it becomes even rare to be offered this type of financing

If the banks like the students, they can, however, be attentive to the choice of the course and the establishment. Some thus confine funding to pupils enrolled in structures recognized by the French Ministry of Education. Similarly, students of large schools or selective subsidiaries often benefit from more advantageous borrowing conditions. In order to attract the desired profiles to them, banks can also establish partnerships with certain establishments, such as business or engineering schools. So do not be surprised if your banker questions you about your training and your motivations!

If this is not an entirely separate condition, the bank can also encourage the student to open a bank account in addition to his loan. In this case, you must also take into account any associated bank charges. But also concerning them, the banks are generous towards this young clientele, sometimes going so far as to exempt them from bank card contributions and account maintenance fees.

Renewable credit: points of attention before subscribing

Trend reversal. After 10 years of almost continuous decline, the production of renewable credit has returned to growth, by almost 2% over one year. How to explain this revival for a product, omnipresent in the files of over-indebtedness, of which one thought the image durably corroded? The E-Money over-indebtedness prevention association sees, in this recourse to credit, the consequence of a drop in purchasing power.

At Good Finance, on the other hand, it is estimated that financial institutions have done a lot of evolution work, following the tightening of the legislation governing renewable credit with the so-called Lagarde (2010) and Hamon laws.

Pay attention to the cost of use!

Pay attention to the cost of use!

Pay ten times without fees ”. It is still often through this type of enticing promise that consumers get a foothold in the world of renewable credit. Free payment facilities remain one of the main arguments – along with loyalty programs – put forward by retail chains to sell their credit cards, whether they are private or not.

The first thing to do before succumbing is to check the reality of this promise of free, taking the time to detail the specific conditions of the offer, which are not to be not always very clear, laments project manager at E-Money. Above all, it should be remembered that this free credit remains a credit, the cost of which is simply covered by the brand for marketing purposes. This will not be the case for subsequent uses of the credit card which, themselves, can be very expensive.

A rate of up to 21%. Reminder indeed: the maximum authorized rate (also called wear rate) on loans of an amount less than 3,000 dollars – depreciable and renewable credits combined – is 21.2% in the 1st quarter of 2019. This figure is calculated by the Good Finance by increasing by one third the average of the rates actually charged by the banks. Which places this average around 16%.

Another point of vigilance: additional costs. Some brands add paid insurance, for example against theft or loss of means of payment, which are often not used for much, warns Maxime Pickup. Again, care must be taken to be aware of the terms of the credit, even a posteriori, and not to hesitate to exercise your right of withdrawal, which runs for 14 days from acceptance of the loan offer.

Be careful not to rush!

Be careful not to rush!

According to Good Finance, 55% of revolving loans are now taken out in bank branches, and less and less at points of sale. Good news for CLCV, which considers that the positive presentation of this type of credit in stores remains a problem. We are announcing that we will “ make your life easier ” with a staggered payment at no cost.

But for that, you have to take the loyalty card with renewable credit, develop Olivier Gayraud, lawyer within the consumer association. And later, the same store will call you back, remembering that you have a “ money reserve ” available.

Avoid being surprised in store

And if in an agency, the banker will take the time to check the creditworthiness of the borrower, at the point of sale, it is often more complicated, says Olivier Gayraud. Whenever possible, it is better to avoid being surprised in the store, and take the time to compare the different ways to finance your purchase, in particular by going to your bank.

Pay attention to the type of purchase!

Pay attention to the type of purchase!

Good Finance’s marketing director recognizes this: “ The idea is not to buy credit food, or a car with a renewable credit (). Financing current expenses in this way, in particular, is the door open to the worst trouble. This is why some large retailers limit the possible uses of their bank cards, in particular by prohibiting the use of the credit function for food shopping.

Personal loan: those borrowers who pay very dearly for low rates

Interest rates are reaching historically low levels. A boon for individuals who benefit from real estate loans at very advantageous conditions. On the other hand, the situation is very different for consumer credit. But why are personal loans so expensive?

With the current interest rates, the context is favorable for credit. A phrase that recurs frequently in the economic and financial press. But, on closer inspection, not all borrowers benefit. The big winners, on the other hand, are the people who bought housing credit.

For real estate loans over 20 years and more

For real estate loans over 20 years and more

The wears rate – a true barometer of borrowing conditions – fell by 36% in 5 years, going from 4.3% at the end of 2015 to 2, 77% for the 4th quarter of 2019. Calculated on the basis of the average interest rates applied by retailers, increased by a third, it corresponds to the maximum rate that a bank can apply.

In contrast, customers taking out small amounts of loans (such as bank overdrafts) are largely overlooked by low rates. Far from having fallen, borrowing rates, measured by wear and tear, have on the contrary increased in recent years. Whereas at the end of 2015 the loan wear rate of less than 3,000 dollars was 19.97%, it now exceeds 21%, an increase of 5% in 5 years.

Between these two extremes, the more consequent personal loans. For credits from 3,000 to 6,000 dollars, the banks reduced their rate by 10% in 5 years and by 27% in the case of larger loans. These borrowers therefore effectively took advantage of the favorable monetary context, but to a lesser extent than those having contracted a mortgage. So much for the observation. But how to explain these so different evolutions according to the type of loan?

Management fees that weigh more on consumer credit

Management fees that weigh more on consumer credit

According to the French Association of Financial Societies (ASF) which federates some 280 financial institutions and represents 50% of the consumer credit market to these differences, r Would result from the very construction of the interest rate. Whether it is a real estate loan or a personal loan, the proposed rate essentially depends on three parameters.

The cost of refinancing first of all, which is a function of the financial engineering developed by the bank to obtain liquidity. For example, members of the ASF are not collectors of bank deposits.

They must fetch the resource either internally via their parent company, or on the markets, illustrates, delegate general of ASF. In recent years, under the impetus of the monetary policy of the dollar plan Central Bank, it is this cost that has fallen.

The second determinant of the interest rate

Second determinant of the interest rate

the cost of risk, that is to say, the probability that the borrower will default. It is measured individually, through the assessment of the borrower’s financial situation (his score), but also collectively, on the scale of the bank’s portfolio. The cost of risk is higher in consumer credit, underlines Good Finance.

For a real estate loan, the lender asks the client for borrower insurance and a guarantee in the form of a bond or mortgage. So the probability of non-reimbursement is low. This factor explains why the rate of a home loan is, in principle, lower than that of a home loan. On the other hand, it does not explain their different evolution, insofar as there is no reason why households are less solvent today than in the past.