* No sign for now of a dangerous housing bubble
* Lending standards traditionally conservative
* Low rates squeezing banks’ lending margins (Adds details, quotes)
By Leigh Thomas
PARIS, Oct 1 (Reuters) - French banks have steadily lowered their mortgage lending standards as borrowers binged on cheap credit, pinching their margins, France’s financial stability watchdog said on Tuesday.
The High Council for Financial Stability, which includes the finance minister and central bank head, said in a report on real estate said it would look in the coming months at how to contain risks.
As interest rates have fallen to record lows, French households have borrowed heavily to finance home purchases, driving house prices and debt burdens to record levels.
The council said that it did not see a clear sign that the real estate market was at danger overheating for now.
“However, lending practices have progressively but continuously weakened with an increase in particular in the most risky practices,” it added.
French banks’ lending standards are generally more conservative than in countries like the United States or Britain, with nearly all mortgages on fixed interest rates and loans over 20 years uncommon.
However, the council warned that banks were increasingly allowing borrowers to take on more debt as a percentage of their revenue, reaching levels not seen since the 2008-2009 financial crisis.
While borrowers had been able to muster a down payment of 23.5% of the purchase price in 2008, they were only able to stump up 12.7% by 2018 as house prices steadily climbed.
Meanwhile, banks are earning ever less on mortgages as interest rates continue falling, so that they are hardly covering the cost of issuing mortgages now, the council said. Banks kept lending mainly to be able win over new clients for other services, like insurance.
In France, mortgage rates generally track the benchmark 10-year government bond yield, which hit a record low of -0.4% in August as investors anticipated a new monetary easing programme from the European Central Bank.
As a result, rates on 20-year loans have fallen in recent weeks to hover around only 1% on average, according to mortgage brokers.
As interest rates have fallen, existing home owners are increasingly refinancing mortgages with cheaper loans, putting further pressure on banks, the council said. (Reporting by Leigh Thomas Editing by Geert De Clercq)