The credit crisis for dummies

Every day in the news, in the media, we hear about the credit crisis and austerity measures to boost growth.

You didn’t jump on the bandwagon and honestly, you don’t understand anything anymore.

Here’s a quick overview to get you up to speed.

The financial crisis in Europe

The findings are undeniable: unemployment in Europe today reaches nearly 11% of the active population, a record. Every month, at the current rate of job losses, nearly 200,000 more unemployed are added. In France, for example, about 1,500 people lose their jobs every day…

Coupled with this, it should be added that many European countries as well as the entire Europe are in recession, meaning that growth has been negative for at least two consecutive quarters. Greece, for example, has been in recession for more than 5 years…

Origin of the crisis

There are three origins to this major financial crisis that began in 2008:

  • Poor management of public finances: indeed, the sovereign debts of the member countries of Europe increase every year. For many countries, this public debt reaches nearly 100% of GDP. Some countries like Italy and Greece have public deficits of more than 120% of GDP. The origin of these deficits lies in the weakness of public revenues compared to the operating costs of the states. In summary, European countries spend too much. They live beyond their means.
  • Collapse of real estate markets and the poor financial health of some banks: the credit crisis mainly comes from the United States but also from Spain. These two countries have in common having speculated on the limitless increase of real estate markets. Thus, US and Spanish banks have lent a lot of money to borrowers who could not afford to acquire real estate at the proposed value. These banks thus speculated on the increase of real estate markets to compensate for the financial risk in case of default. Unfortunately, the real estate markets collapsed. Borrowers could no longer repay their loans and some banks had to record financial losses, putting them on the brink of bankruptcy.
  • Financial speculation by banks: many banks – and virtually all banks – speculated with the poor financial health of the southern member states of the economic union. They massively bought bonds from countries in difficulty whose securities offered significant returns, notably Greek debt securities. Unfortunately, these banks never imagined that a country could go bankrupt and default. However, this is what happened to Greece and to save this country, it was necessary to grant it gigantic reductions on its public debts. In other words, holders of Greek bonds saw their claims reduced by nearly 70%, which once again pushed banks, holding these securities, to the brink of bankruptcy. This is exactly what happened to Cyprus, which massively held Greek paper.

Consequences

There are essentially two consequences to this delicate situation.

  • Public deficits must be reduced in European countries. In summary, European countries should try to generate revenues higher than their costs, which is not currently the case.
  • The refinancing of banks in great financial difficulty must be carried out. Indeed, banks being the engine of the economy, if these banks no longer have liquidity, they can no longer lend money to the real economy and it is then the entire production-consumption chain that is affected. Currently, this is the case and this explains the recession situation.

Austerity or recovery?

To stem this situation, two policies face each other:

  • Austerity policies that essentially consist of reducing state spending and increasing public revenues through new tax levies and the reduction of social benefits.
  • Policies to boost economic activity that would consist of favoring production tools to restart economic activity, reduce unemployment and generate new tax revenues.

What future for what Europe?

Europe has gone too far in its social policy and the social model it boasts so much about kills its competitiveness compared to other regions of the world. Under these conditions, the temptation for industrialists to relocate their production is great and this leads to the factory and company closures we know.

To become competitive again, Europe will have to adapt to the realities of other regions of the world, otherwise it is doomed to become an industrial and social cemetery.

Making this economic, social and political shift in Europe could take at least 15 years – especially because of the power of unions and the complexity of our labor codes – enough to probably put a generation of workers in difficulty.

Take out credit to buy a used car

In Belgium, more used cars are sold each year than new cars. Indeed, nearly 500,000 new vehicles are sold in Belgium, while the used car market accounts for around 700,000 units. Here are a few tips to help you make your car loan with full knowledge of the facts.

When is a vehicle considered to be in the new vehicle category?

In terms of auto financing, you benefit from advantageous conditions and a reduced APR as long as the desired vehicle is less than three years old since its first registration. After three years, it will be considered a used vehicle.

Auto financing or installment loan?

This is another important distinction to keep in mind. If you buy your vehicle from a professional used car dealer – currently, all car brands have a “used car” department – you can get auto financing and benefit from a reduced rate.

However, if you buy your used car from a private individual, you cannot get auto financing. You will have to take out an installment loan with less favorable conditions.

Why such a distinction?

Simply because of the additional warranty associated with the sale of the used vehicle. Indeed, when you buy a car from a private individual, you do not get any warranty on the vehicle.

On the other hand, if you buy your used car from a professional seller (a garage), they are required to provide you with a parts and labor warranty of at least one year and can – if you negotiate well – extend this warranty to two years. This is a legal provision that the professional seller cannot evade.

Since your credit organization has additional guarantees on the loan object, it is normal that the APR affecting your used car loan is reduced and more attractive.

Can I take out a car loan without down payment?

car loanIt is entirely possible to get a car loan without a down payment. In reality, a down payment will not affect your APR.

Making a down payment to buy a vehicle can, however, have an impact on the acceptance of your loan application by the lending institution. It is clear that a bank will always favorably welcome a loan application from a borrower who already has the liquidity to pay part of the car’s price.

Financing all or part of the vehicle

It is entirely possible to finance only part of the vehicle and pay the residual value at the end of the loan contract. The residual value can range from 30 to 40% of the amount of the borrowed capital. Note that this formula is particularly interesting for people who change their vehicle every 4 or 5 years. We will come back to this very interesting formula in our next article.

Other important points for financing your vehicle

Financing a new or used car?

Car financing is a special type of loan that follows specific rules. Thus, you can only buy a vehicle registered in Belgium or Luxembourg. You must provide the purchase invoice and your lender will pay the garage that sells you the vehicle directly.

The APR is different depending on whether the vehicle is new or used. A vehicle is considered new up to 3 years after its first registration. The APR is lower for new vehicles. This pricing depends on the market.

The conditions for a car loan without a down payment

There is no limit on the amount for auto financing, and the repayment duration is generally 4 to 5 years but can go up to 7 years in some cases.

Financing a used vehicle between individuals?

In Belgium, car financing is no longer accepted between individuals. In this case, the person buying a used vehicle from a private individual must take out an installment loan. The APR is more favorable for car financing than for an installment loan because the vehicle sold by a garage comes with the warranties of professional sellers (some garages guarantee the used car for up to 4 years).

Important information about car loans without a down payment

When you take out a car loan to buy your car, you give yourself the opportunity to buy the car without having all the money upfront.

You can use a car loan to buy a new or used car from a bank. It is a line of credit, and you will have to repay the bank within a timeframe and at a rate determined by the bank.

There are differences between banks offering car loans, so it is useful to compare the contracts. You can find the cheapest terms or choose the terms that best suit your personal situation.

Borrowing money costs money, so make sure to compare rates and get the lowest one. Knowing what you’re talking about will save you money.

Finally, Cpe Credit displays the current rates offered on our site. We periodically update the interest rate so that people can see where they could get the best car loan rate.

Mortgage credit: fall in property prices in Belgium

mortgage loan, real estate prices, mortgage

For several decades, residential real estate prices have been steadily increasing in Europe and Belgium. In the 1980s-2000s, this growth was very strong, with an annual rate of around 10%. Furthermore, this growth was coupled with inflation, which was around 7 to 8% per year. Since 2005, we have observed a significant flattening of the real estate price curve and even a drop in prices in the first quarter of 2014.

Moreover, inflation remains very low in Europe, around 2% per year, and interest rates are also very low. All the conditions are therefore in place to consider that we are experiencing a favorable moment to consider a real estate purchase and a credit in Belgium.

All the technical explanations summarized in a few key ideas in our article.

The housing price index is falling in Europe and Belgium

The housing price index measures inflation in the private property market. This index tracks price changes of new or existing residential properties bought by households, regardless of the purpose (rental or personal occupancy).

The Belgian housing price index fell by 1.6% in the first quarter of 2014 compared to the previous quarter. The annual inflation rate stands at -1.1%. The average inflation was 1.2% in 2013.

The housing price index for the eurozone and the European Union for the first quarter of 2014 will be published by Eurostat on July 10, 2014. In 2013, the average annual inflation rate reached -1.9% in the eurozone and -0.9% in the European Union. More information on the housing price index

Evolution of real estate prices in Belgium

By analyzing the evolution of price curves of houses, apartments, and villas in Belgium, we observe a significant flattening of the curve since 2010.

It seems that the era of constant real estate price increases is behind us.

This is good news for prospective buyers and borrowers.

However, investors may need to start reviewing their strategy if they want to keep in mind that the cost evolution curves continue to rise. Real estate remains an investment that generates net gains but much less significant than in the past.

Evolution of interest rates

The level of mortgage rates is actually linked to the bond rates in the financial markets, which vary daily. When bond rates fall, mortgage rates also fall, as credit institutions simply follow the market.

In simple terms, bond rates generally move in the same direction as stock markets.

In recent years, and following financial crises, investors have opted for safer financial products such as bonds. As a result, their returns have significantly decreased along with interest rates.

We are going through a period where interest rates are historically low: at Crédit Populaire, we can guarantee you a rate of 3.5% over a period of 20 years (fixed rate).

Use our fee calculators

When you make a real estate purchase, you should not overlook the ancillary costs that are added to the purchase price. These costs are essentially of two types.

Our simulators allow you to have a very precise overview of the fees that will affect your purchase: it’s a very practical tool.

Our mortgage loan specialist

Ms. Jacqueline Legrand will be your personal advisor for your purchase: Jacqueline has been managing mortgage loans for over 30 years, she is a key player in this market and guarantees to find the interest rate and loan formula that best suits your needs.

Contact: Ms. Jacqueline Legrand: phone: 04/387.73.78 – Mobile: 0486/77.66.97

Visit our website: www.cpe-credit.com

Your most frequently asked questions about mortgage loans: all our answers here

Free insurance against loss of income

insurance

Did you know? The Walloon Region can take out an insurance policy against loss of income for you, at its own expense, with an approved company. The insurance is completely free, and the beneficiary will not have to repay any amounts that may be paid by the company under the said insurance. This is therefore a significant guarantee for meeting the financial commitments related to your mortgage loan.

What is loss of income insurance?

Loss of income insurance is insurance that guarantees its beneficiaries assistance in repaying their mortgage loan in the event of total and involuntary job loss, total incapacity to work, or layoff.

Reimbursements will be limited based on the loss of income incurred.
In what cases can you benefit from it?

You can benefit from loss of income insurance if you take out a mortgage loan in order to:

  • Build or buy a new home in the private sector (purchase of a house, a turnkey apartment, a shell) ;
  • Buy a home in the public sector (for example, sold by SNCB, a municipality, the CPAS) ;
  • Buy an existing home in the private sector and carry out rehabilitation work covered by the loan for a minimum amount of €7,500 excluding VAT ;
  • Carry out rehabilitation work in your home covered by the loan for a minimum amount of €16,150 excluding VAT ;

What are the conditions?

  • The mortgage loan must be taken out exclusively by the applicant and their future spouse or cohabitant, if applicable ;
  • The mortgage loan must be in the first rank. However, a second-rank loan may be covered in the case of construction or renovation if the first-rank loan was used to finance the purchase of the land or home and if the first-rank loan has not already been covered by such insurance ;
  • You must have a stable professional situation at the date of the application or the signing of the loan act, if later. The law requires that you either work at least part-time under a permanent contract or status, be self-employed as a primary occupation, or hold a temporary job at least part-time in education, with a minimum service length of 8 years.
  • Your home must be located in the Walloon Region and primarily intended for housing. The part of the home possibly used for professional purposes must therefore be less than 50% of the total area.
  • At the date of the application and in the two years preceding this date, the applicant and/or their (future) spouse or cohabitant – even if they do not appear in the loan act – must not, alone or together, possess or have possessed another home in full ownership or usufruct. However, an exception is allowed if the home is recognized as non-improvable or uninhabitable.
  • The applicant and their (future) spouse or cohabitant must undertake not to sell or rent the home in whole or in part, to establish their primary residence there, and to consent to the Administration’s control of compliance with the aforementioned commitments.

What is the extent of the coverage?

Loss of income insurance covers the payment of your loan up to a maximum of €6,200 per year, for a maximum duration of 3 years, and for a loss of income occurring within the first 8 years of the loan.

What is the procedure to follow?

Your complete file must be submitted to the Walloon Public Service (Housing Department) no later than 6 months after the signing of the authentic loan act.

For more information on our mortgage loans, visit our section /solutions-credit/solutions-immo/pret-hypothecaire

What is legal protection insurance used for? What is the objectivity clause?

Anyone might one day have to deal with the justice system, whether to defend themselves or to pursue a legal action. Legal costs, attorney fees, and expert fees can be significant. Although the law provides for a procedure indemnity in favor of the successful party, this often proves insufficient to cover all incurred costs. Let’s take a look at legal protection insurance.

Understanding Legal Protection Insurance

The purpose of Legal Protection Insurance is to allow you to assert your rights as a plaintiff or defendant, whether in a judicial, administrative, or other procedure, or outside any procedure.

The Legal Protection Insurer will undertake, in exchange for the payment of an insurance premium, to cover all your defense costs.

This will be the case, for example, if you have received a summons to appear before the police court or if you wish to obtain compensation for damages suffered in a road accident.

The Objectivity Clause

Generally, the legal protection insurer will first attempt to settle your case amicably.

If you disagree with your insurer’s point of view, you have the right to invoke the objectivity clause and consult the lawyer of your choice.

Three scenarios are then possible:

  • • If the lawyer confirms the insurer’s position, half of the consultation fees and costs will be reimbursed to you.
  • • If the consulted lawyer confirms your position, the insurer will be obliged, regardless of the procedure’s outcome, to provide coverage, including the consultation fees and costs.
  • • If you proceed at your own expense, against the advice of your lawyer, and achieve a better result than you would have by accepting the insurer’s and lawyer’s viewpoint, the fees and costs, as well as the consultation fees, will be fully covered by your insurer.

A conflict of interest may arise when the same insurer covers the same insured party for both civil liability and legal protection.

This is why we recommend taking out your legal protection insurance with a different company.

The free choice of lawyer will also help mitigate this conflict of interest.

I am unemployed, can I borrow?

In principle, if you are unemployed you cannot borrow because your unemployment benefit cannot be seized unless you have a guarantee, that is to say a person who agrees with you and who has seizable income. . In addition, if you own an investment property and have rental income, you can borrow under a mortgage loan.