PARIS (Reuters) - French banks must tighten mortgage lending standards or they will be told to stump up extra capital for risky loans, the head of the central bank governor said on Tuesday in a blunt warning.
As interest rates have fallen to record lows, many French households have binged on cheap credit to buy a home or refinance previous loans, driving up house prices and debt burdens to record levels.
At nearly 7% in a year, mortgage lending growth in France has outpaced almost all other euro zone countries, causing regulators to fret.
Last month the High Council for Financial Stability, which included the finance minister and central bank governor, told banks to snub borrowers taking on debt more than 33% of their income and to cap mortgages at 25 years max.
“It applies to all new loans issued since January. This means, in short, no more excesses, and a rapid change in behaviour. Otherwise, we might see a capital surcharge for non-compliant loans,” Bank of France Governor Francois Villeroy de Galhau said in a New Year’ speech to finance executives.
He also urged banks to better manage their mortgage pricing so that margins were rich enough to cover the costs and risks associated with loans.
French banks have been fiercely competitive on mortgage lending recently with many prepared to squeeze their margins on a loan in hope of winning new clients to whom they can then sell other services like insurance and investment with juicier fees.
Reporting by Leigh Thomas; Editing by Geert De Clercq