It was not a foregone conclusion ! After a long battle, the Constitutional Council finally ruled on Friday, January 12, on the validity of the Bourquin amendment, a measure allowing any borrower, regardless of the date of subscription of his credit, to change each year the contract of insurance borrower. If this is good news in the short term, which should generate substantial savings for certain borrowers, Lite lender, a network of 170 credit brokerage agencies wonders about the impact of such a measure in the medium term… Because the fact that all contracts can be renegotiated risks weighing on the profitability of the banks, which will have to compensate for the shortfall generated. In the end, this could contribute to the rise in mortgage lending rates in 2018, in a context of price increases too …
Elders validate annual termination of loan insurance
The Constitutional Council ruled on January 12 on the validity of the measure allowing any borrower to change each year a borrower’s insurance contract.
From now on, all loan insurance contracts, including old ones, can be terminated on the anniversary date and be replaced by another one, provided that the guarantees are equivalent and that the bank accepts this new contract.
This was already the case, for contracts signed since March 2017, as part of the Bourquin amendment (article 10 of the law of February 21, 2017) which provided for an annual right of termination beyond 1 year for all contracts.
At the end of October 2017, the Lite lender bank, had filed an appeal with the Constitutional Council to contest the application of this right of annual termination for the stock of old contracts, that is to say those signed before on February 22, 2017, banks fearing massive departures of their youngest borrowers towards cheaper insurance, which would call into question the risk pooling model.
A risk of rising credit rates …
Indeed, in some banks, more than a third of the stock of loan contracts could be affected by the annual termination. “After the wave of renegotiations of credit rates, we will attend this year the renegotiation of loan insurance … Young people in particular will be concerned, because they are the ones who compare the most and may also have an offer of more advantageous insurance with savings at stake… This will inevitably destabilize the banking world which holds 80% of the borrower insurance market, which could have consequences, in particular on credit rates… ” analyzes Sandrine Allonier, director of You finance bank relationships.
“In the short term this is good news for borrowers, of course … But in the medium term, the fact that the stock can also be canceled will weigh on the profitability of banks. Indeed, the borrowers concerned are essentially those who have taken out a loan recently, therefore at very low rates as we have known them for 4 years, and on which the banks’ margins could become negative after the fact once the insurance is terminated… In In this context, it is certain that the banks will have to find a way either to keep their borrowers or to compensate for the shortfall, which could contribute to a gradual rise in credit rates even when we were expecting rather stable rates at the start of the year… ” analyzes Jérôme Robin, president and founder of Lite lender.
Significant savings at stake
Against all expectations, people with illness will find it beneficial to terminate their borrower insurance. A real opportunity. As proof, this 43-year-old man suffering from melanoma who borrowed, at the beginning of 2006, $ 220,000 over 20 years with cover in the event of death at a rate of 0.72% (0.34% + 0.38% surcharges). In January 2018, it will be able to find new cheaper borrower insurance, around 0.07%, by asserting its right to be forgotten. He will thus achieve a significant saving of $ 13,500, in this case, $ 125 per month of remaining credit, according to Magnolia.
Savings also in the event of a change in situation which is not to the benefit of the insured
The same will apply in the event of a change of situation which is not to the benefit of the insured. The example of this PACS couple under 30 is the perfect illustration. In January 2016, they contracted a loan of $ 300,000 over 15 years with a loan insurance rate of 0.30%. In the meantime, the spouse changes professional activity for a so-called “at risk” profession. As some insurance delegation contracts do not distinguish between “at risk” and “traditional” professions, the couple can claim new insurance at a rate of less than 0.09% as of January 2018. They will thus realize a gain of 18,800 $, or 120 $ less expenditure per month compared to their initial insurance.
In the event of illness, it should be noted that some are considered to be very mild by certain insurers, who will not offer a premium or a minimal premium, as for diabetes.
The most significant savings for those under 40
Banks are wary of borrowing from older people. For good reason, with the years, the medical history is more numerous and the probabilities of not repaying the loan until its term are higher. “This population will therefore tend to think that it is in their interest to keep their insurance, especially if the loan was taken out several years ago. However, and even in this situation, savings are not impossible.
But unsurprisingly, the people who will make the most savings remain those under 40 in good health and with a stable professional situation: nearly 10,000 USD per person for a loan of 250,000 USD over 20 years, with a rate of initial group insurance of 0.30%, renegotiated to 0.06 according to a simulation of Magnolia. In short, 2018 is off to a good start for borrowers.