The 'Loi Lemoine', passed by the French parliament last month, aims to simplify and create greater transparency in the market for mortgage loans.
Three major changes have taken place:
Abolition of the medical questionnaire for certain home loans;
Modification of the conditions of application of the 'right to forget';
The right to terminate the insurance contract at any time.
At the present time, all applicants for a French mortgage are required to take out a mortgage protection policy which pays off the loan in the event of death or invalidity. It is not a legal requirement, but there are few instances when a French bank would be willing to grant a loan without it.
As part of that process all applicants are required to complete a medical questionnaire, which has now been abolished for many loans.
More specifically, the questionnaire or a medical exam can no longer be demanded, provided:
The loan is under €200,000 per person (€400,000 for a couple);
The mortgage term ends before the mortgagee reaches the age of 60 years.
Beyond this age a medical questionnaire can continue to be requested by the bank.
The change will therefore only benefit applicants aged 50+ whose mortgage matures in less than 10 years.
Mortgage professionals in France consider that whilst the change may be beneficial for those with a medical issue, as well as smokers, it is likely to increase the level of the insurance premium for everyone else, to cover the increased risk banks will incur.
The change does not apply to unsecured loans, such as those for a car or other assets.
In addition to this change, the right to forget (droit à l’oubli) after the end of treatment for people cured of cancer or hepatitis C has been reduced from 10 years to 5 years. This means that such applicants will no longer be required to provide information on their pathology and cannot be subject to a higher premium or exclusions. The rule applies on loans of any kind less than €200,000.
For those with other grave illnesses not covered by the law, there exists another procedure to facilitate access to loans, called Aeras - s'Assurer et Emprunter avec un Risque Aggravé de Santé (Insure and Borrow with Aggravated Health Risk). We will say more about this service in a future article.
The new law also requires the lenders involved in the Aeras agreement to engage in new discussions on pathologies other than cancer or hepatitis C. Here again, the aim is to take into account the favourable evolution of treatments and the reduced risk of relapse.
Finally, the new law grants to borrowers the right to change their loan insurer at any time, without waiting for the anniversary date and without charge. It is a right that is already available in health and vehicle insurance contracts.
Mortgagees will normally use the mortgage protection policy offered by the lender, although this is not mandatory. Most insurance companies offer such policies.
Bank margins on such contracts are substantial. The consumer magazine Que-Choisir estimates that on each €100 of premium paid, only €32 is ever used in a claim. They consider moving to a new lender could save a borrower up to €15,000 over 20 years on a €250,000 loan.
Currently, borrowers can change their loan insurer at any time during the first 12 months. Beyond that they can change once a year, on the anniversary of the date of signing the loan offer.
The applicable operative dates for the new law are:
1 June 2022 for new home loans;
1 September 2022 for current contracts.
The obligation to inform policyholders has also been strengthened. Each year, insurers will have to inform policyholders of the existence of the right to cancel and the procedures for doing so. Banks can no longer insist that the notice of termination is given by a recorded delivery letter, although that may continue to be advisable.
Terminating your existing policy does not grant you the right to be without mortgage protection; you will need to demonstrate you have put a new comparable policy in place, and the operative date. If the bank refuses the new policy, they are obliged to justify with precision their decision.
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