Economic effects on households of an augmentation of the cash back duration of real estate loan

TL;DR

This paper analyzes how extending the repayment duration of home loans in France could improve credit access for modest households but also raises concerns about increased costs and financial stability, using a model of market impacts.

Contribution

It introduces a model assessing the effects of longer amortization periods on housing demand, prices, and financial risks in the French real estate market.

Findings

Longer loan periods can reduce monthly payments for households.

Increasing amortization raises overall loan costs and financial risks.

Differences in international lending systems influence potential policy impacts.

Abstract

This article examines the economic effects of an increase in the duration of home loans on households, focusing on the French real estate market. It highlights trends in the property market, existing loan systems in other countries (such as bullet loans in Sweden and Japanese home loans), the current state of the property market in France, the potential effects of an increase in the amortization period of home loans, and the financial implications for households.The article points out that increasing the repayment period on home loans could reduce the amount of monthly instalments to be repaid, thereby facilitating access to credit for the most modest households. However, this measure also raises concerns about overall credit costs, financial stability and the impact on property prices. In addition, it highlights the differences between existing lending systems in other countries, such as the bullet loan in Sweden and Japanese home loans, and the current characteristics of home loans in France, notably interest rates and house price trends. The article proposes a model of the potential effects of an increase in the amortization period of home loans on housing demand, housing supply, property prices and the associated financial risks.In conclusion, the article highlights the crucial importance of household debt for individual and economic financial stability. It highlights the distortion between supply and demand for home loans as amortization periods increase, and the significant rise in overall loan costs for households. It also underlines the need to address structural issues such as the sustainable reduction in interest rates, the stabilization of banks' equity capital and the development of a regulatory framework for intergenerational lending to ensure a properly functioning market.