Zero Rate Loan and elections, what you need to know!

Zero Rate Loan and elections, what you need to know!
Zero Rate Loan and elections, what you need to know!


7h00 ▪
11
min reading ▪ by
Thomas A.

The zero-interest loan is experiencing increasing success with the explosion in the cost of credit. Over the last two years, the household borrowing rate for housing has almost doubled. With the recent extension of the zero-interest loan, nearly 3 out of 4 French people are potentially eligible. But this state aid comes at a significant cost, as public deficits continue and worsen. The legislative elections at the end of June also revived political promises on zero-interest loans. The latter could be extended beyond the current framework. Deciphering how the zero-interest loan works: this additional state aid at a time of credit difficulties…

What is the zero interest loan?

The zero-interest loan was created in 1995 in France. Its main objective is to facilitate access to property for first-time buyers (i.e. people who have not owned their main residence in the last two years) by allowing them to benefit from an interest-free loan. But this loan does not allow you to finance the entire main residence and must be supplemented by credit. To be eligible for the PTZ, several criteria must be met:

  • First-time buyers: the PTZ is reserved for first-time buyers. Beneficiaries must not have owned their main residence during the last two years preceding the loan application.
  • Resource Conditions: household income must not exceed a certain ceiling, which varies depending on the geographical area where the property is located and the composition of the household. The income taken into account is that of year N-2 (two years before the loan request). For a couple with two children, the ceiling varies from €60,000 to more than €100,000 depending on the geographical area.
  • Geographical area : the PTZ is allocated according to the location of the property, divided into zones A, B1, B2 and C, which determine the resource ceilings and loan amounts.
  • Nature of the Property: the PTZ can finance the purchase of new or old housing with work representing at least 25% of the total cost of the operation. It can also finance the construction of new housing, including the purchase of land.

Up to what amount?

For its part, the maximum amount of the PTZ is determined by a percentage of the total cost of the operation, which varies according to the geographical area and the nature of the accommodation. For example, up to 40% of the total cost of the operation for a new home (in zone A or B1).

According to the government, up to 29 million tax households are « potentially eligible » to the zero-interest loan. This would represent 73% of the population. This expansion of the zero-rate loan, announced in 2023, could thus concern « Households earning up to 4,500 euros per month will now be able to benefit from the PTZ. The maximum loan amount will increase to 100,000 euros »according to Les Echos.

Rising interest rates are weighing on households…

Since 2022, the growth in housing loans has collapsed. Consequently, the number of housing loans is entering a period of stagnation. This phenomenon limits the proper functioning of the real estate market and above all adds an interest cost for households purchasing a property. The explosion in the cost of credit therefore seems to have increased the urgency for the government to meet the demand for housing. But the cost of this measure is necessarily borne by taxpayers…

Growth in housing loans granted to households. Source: Panorama of household housing loans | Bank of France (banque-france.fr)

The overall effective rate paid by households thus increased from less than 2% in 2020-2022 to more than 4% in 2024. This sharp increase in the cost of credit, the price of which has been multiplied by 2, necessarily weighs on household projects. It should be noted, however, that the reduction in the number of potential buyers has also reduced demand, and consequently prices. The price of real estate has mainly fallen in most major cities, thus ensuring a form of « compensation » of the increase in the cost of credit.

Rates of new household housing loans for some euro zone countries. Source: Panorama of household housing loans | Bank of France (banque-france.fr)

Zero-interest loan: a concrete effect on access to housing?

In addition, the amount of zero-interest loans granted to households increased from just over 35 billion euros in 2019 to more than 43 billion at the start of 2024. That’s an increase of more than 23% in just 5 years. Furthermore, the share of first-time buyers seems to be increasing, certainly under the effect of the zero-interest loan. At the start of 2024, 52% of credits granted for housing concerned the acquisition of a first property.

Share of first-time buyers in housing loans and outstanding zero-interest loans. Source: Panorama of household housing loans | Bank of France (banque-france.fr)

What are the political parties proposing?

The zero-interest loan is an integral part of the outbidding in political programs for the legislative elections. For example, the New Popular Front wants to expand the zero-rate loan “without geographical distinction, or between new and old”. The income conditions would therefore remain required, even if the details of the proposal remain ambiguous.

Likewise, the National Rally promises to “ create a 0% loan for young French families, transformed into a grant for couples who will have a third child”. In the race for proposals, the government of Gabriel Attal preferred to consider another avenue…

The exact cost of the proposed measures remains very ambiguous. But the desire to extend this measure to a large part of the population seems clearly stated. In this case, it is possible that the number of eligible French people will increase to 80% or more, even if these proposals remain very vague.

And the taboo of notary fees?…

Why favor first-time buyers with assistance rather than reduction in purchasing costs? The administrative complexity of the zero-interest loan once again shows the difficulty of such a system. So why not reduce notary fees?

Indeed, notary fees represent a significant cost when acquiring real estate, the majority of which goes to the State in the form of taxes and transfer duties. THE transfer taxes represent the majority of notary fees and are paid to the Public Treasury. These rights vary between 5% and 5.81% of the sale price of the property. Added to this are the notary fees and the so-called disbursement costs for the completion of the deed of sale. In particular, the fees received by the notary for his work. The fees are set by decree and depend on the sale price of the property. Clearly, acquiring real estate is expensive…

This transaction cost constitutes a real barrier to purchasing. Several political parties in France have proposed reforms to reduce these fees and facilitate access to property, although the approaches and degrees of reform vary. In the race for the legislative elections, Gabriel Attal proposed to eliminate notary fees for purchases of less than €250,000 for « young people from the middle and working classes ». Likewise, the RN already proposed reducing transfer taxes to promote access to property and stimulate the economy.

In conclusion

The zero-interest loan concerns more and more French people while the legislative elections revive political proposals. The increase in outstanding zero-interest loans also shows households’ interest in this assistance, while the cost of credit has doubled over the last two years. Indeed, credits granted for housing are experiencing unprecedented stagnation.

This situation reflects two phenomena. On the one hand, the difficulty households have in finding housing or carrying out projects. On the other hand, the reduction in the growth of housing supply in the long term. Through the zero-interest loan, the State seeks to mitigate the effects of rising rates and the tensions linked to the housing crisis.

Finally, the legislative elections revived proposals to expand the zero-rate loan. The New Popular Front, like the National Rally, seem to opt for an expansion of the system. This expansion could be done to all geographic regions for the New Popular Front, or to young families for the National Rally.

However, isn’t helping hypocritical? Indeed, the high cost of notary fees is also an obstacle to the first acquisition of households. Some proposals thus seem to target the question of notary fees.

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Thomas A.

Author of several books, economic and financial editor on several sites, for many years I have developed a real passion for the analysis and study of markets and the economy.

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