It is useful to know the different guarantees required by financial institutions before borrowing in order to purchase a property asset. There are three types of guarantee for covering the borrower’s non-payment. They do not all have the same results or the same cost.
In a previous post, we talked about the terms and conditions for the mortgage charge and the money lender’s preferential claim. We will now go into more detail on
A mortgage loan guaranted by a specialised institution
In the context of a surety bond, the loan is guaranteed by a third party – a specialised institution which ensures that the bank is reimbursed if the borrower defaults.
In this case, the surety bond company will of course start proceedings against the borrower. In the absence of out-of-court solutions with the latter, the surety institution proceeds first of all with registration of a judicial mortgage to be paid for by the borrower, which is expensive, and then repossession and sale of the property in order to be reimbursed.
What is the price of the surety bond
The borrower’s contribution is broken down into two parts :
- A surety fee which represents either a percentage of the loan amount, or a flat-rate amount.
- In certain cases, a sum is also paid to the mutual guarantee fund. The latter may be partially or fully refunded once the loan has been paid back. However, the longer the loan, the greater the risk of the amount returned being drastically reduced by inflation.
A guarantee flexible and easy to set up
The surety is appreciated for its flexibility. According to the French competition regulator, in many cases, the computer systems of banking establishments and surety companies are connected via IT. The documents in the file are transmitted direct by the bank to the surety body. Some surety companies are therefore in a position to give approval within 48h.
In addition, from a psychological point of view, some observers consider that the mortgage, which encumbers the purchased property, leads to the feeling of a varying degree of dispossession.
N.B., while the surety bond appears attractive, it is not automatic. The surety bond body will study the borrower’s file in line with its own criteria, which may be different from those of the bank. In this way, even if the bank believes it, the surety company may refuse to give its approval.
According to the surety bond company Crédit Logement, the surety bond gives itself the lion’s share in the guarantees favoured by banks: its share, in terms of producing mortgage loans, appears to have increased from 30% in 2000 to around 60% today.
The surety bond is provided by several players.
- These are often captive banks. The best known and most active of these, Crédit Logement, works with most banks.
- There are others such as CMH (Cautionnement mutuel de l’habitat), which works in liaison with Crédit Mutuel.
- Insurance companies are also active. These are generally the dedicated subsidiaries of mutual insurance groups such as CEGC in the BPCE group which offers the Saccef surety solution.
N.B., the mutual fund, described above, is not systematic. It is of course offered not only by Crédit Logement, but also the FMGM funds (Fonds Militaires de Garantie des Militaires).
Other sureties, sometimes less expensive according to Prêtimmobilier.com, do not provide reimbursement of a proportion of the contributions such as CAMCA, SACCEF and CNP Caution.
As far as sureties are concerned, terms and conditions vary in line with the amount borrowed, the total of instalments and the borrower’s age. There are simulators put in place by surety companies, in order to calculate the amount of the guarantee.
Cost of the Housing Loan
So, we have finished our tour of the guarantees most often required by the banks. You should realise, if you do not mobilise all your assets in the property purchase loan, that there are also possibilities for pledging certain properties. Please don’t hesitate to question our specialists or your solicitor.