Real Estate Credit : New Rules to Facilitate Borrowing
On February 17, Parliament passed a law that altered the situation for debtors who are completing a real estate project. If some laws relating to loan insurance are relaxed, this good news may have negative effects for the family budget. The following are some reasons.
The possibility of changing borrower insurance at any time
It often accounts for a significant portion of a mortgage’s total budget – several thousand euros at the very least. Borrower insurance is necessary since it protects both the bank and the borrower and his heirs in the case of death, complete or partial incapacity, or even job loss. Insurance companies, on the other hand, have a wide range of pricing policies.
Until now, you could only cancel your insurance – which is often taken out with the lending institution as a condition of issuing the loan – within the first year or on the loan’s anniversary date. It will now be able to choose new, more beneficial insurance at any moment and for no cost. This approach will surely motivate many homes to take an interest in the savings that may be realized on this topic, in addition to making the procedure easier.
Borrowing families may gain between €5,000 and €15,000 on their whole debt, which would have a significant influence on their spending power. For new loan contracts, the policy will take effect in June 2022, and for existing contracts, it will take effect in September 2022.
Removal of medical information for certain credits
The renowned questionnaire, which acts as a sworn declaration of the applicant’s health history, has previously been supplied to each mortgage borrower by their lending bank. All prior medical issues and diseases must be listed, with supporting documentation from a medical authority if required. This information is used to determine the patient’s medical risk, which has an influence on the amount of the required insurance payment. Any omission or breach allows the insurance company to free itself of potential compensation: this is a serious matter that should be addressed carefully by all parties.
The new legislation presented by Parliament intends to eliminate the health questionnaire for any loan of less than €200,000 taken out by someone under the age of 60 at the conclusion of the repayment period. According to the broker MeilleurTaux, this still accounts for almost one out of every two files!
Modification of the right to be forgotten
For cancer patients, it was established at 10 years following the conclusion of the treatment procedure, but it was decreased to 5 years for those under the age of 21. All persons who have had cancer or hepatitis C will have a 5-year right to be forgotten under the new law. After this time period, it will no longer be necessary to state that you have suffered from certain diseases, and failing to do so will not be grounds for denying compensation.
The lawmaker seeks to go even further, requiring the players of the Aeras convention (aimed at “insuring and borrowing with an exacerbated health risk”) to deliberate on the norms to be implemented for additional illnesses by the summer of 2022. Given the new medicines that have become available, which are more successful and minimize the chance of recurrence, an evolution would be acceptable.
A foreseeable consequence on the household budget
Insurers will undoubtedly respond to the new laws in order to protect themselves from the increased risks. To compensate for the lack of awareness on the risk taken, a general rise in insurance payments is to be expected. If higher premiums previously only affected policyholders who were thought to be at higher risk, any contract may now be affected out of caution due to a lack of knowledge.
According to Crédit Mutuel, the first bank to have already removed the health questionnaire for any borrower by the end of 2021, the rise to be anticipated is modest, on the order of one to two euros per monthly payment. He purchased his primary property and has been a customer of the bank for over seven years.
For a traditional loan taken out over 20 years, the entire budget would therefore grow from €240 to €480, having a considerable effect on those with the tightest budgets.
The proposed regulations are admirable and will help to ensure better fairness amongst bank customers when it comes to risk and insurance. Former patients will have easier access to loans in the future. Nonetheless, insurers are being pushed to cover individuals who may be in bad health while having fewer means to determine this. If the repercussions affect all subscribers, this aligns with societal logic, which demands that social security, unemployment, and retirement be paid for by everyone.