Mortgages are at the heart of most of life's projects, whether it's the purchase of a primary residence or a rental investment. However, the legal framework surrounding it is so dense and complex that borrowers are often surprised. Far from being a simple loan contract, it is governed by a set of specific rules, mainly derived from the Consumer Code, the aim of which is to protect non-professionals. Understanding who is protected, for which transactions, and according to which texts is a fundamental first step. A misinterpretation of the scope of application can have significant financial and legal consequences, underlining the importance of seeking the support of an expert. expert lawyer in mortgage law to secure your project.
Changes to the legal framework for home loans
To understand the scope of the current rules, it is essential to understand how they originated and how they have evolved. Home loan law is not a monolithic block; it is the result of a sedimentation of national and European texts that have progressively strengthened borrower protection.
From the Scrivener Act to the 2016 Ordinance and the European Directives
The starting point for modern protection of property borrowers is Law 79-596 of 13 July 1979, known as the "Scrivener Law". It introduced mechanisms that have become fundamental, such as the preliminary offer of credit and the compulsory cooling-off period. Its aim was to put an end to "hot off the press" commitments and allow consumers to compare offers.
This foundation was radically overhauled by Order no. 2016-351 of 25 March 2016. This text transposed into French law European Directive no. 2014/17/EU of 4 February 2014, creating a harmonised framework at European level for consumer credit agreements relating to immovable property for residential use. This reform not only redefined the scope of property credit, but also introduced new obligations for lenders, particularly in terms of information and assessing creditworthiness. This new general legal framework for home loans has considerably increased the borrower protection post-reform 2016These provisions have been incorporated into the French Consumer Code, mainly in articles L. 313-1 et seq.
Specific application dates for the new provisions
The transition to the new regime did not happen overnight. The 2016 Order provided for a staggered entry into force of its provisions, an essential technical point in determining the law applicable to a contract. While the general regime came into force on 1 July 2016, a number of important aspects have been deferred. For example, the provisions on advertising, the European Standardised Information Sheet (ESIS), the APR and the duty to explain did not become mandatory until 1 October 2016. Other requirements, such as those on the training of lenders' staff, have been spread out until 2019. This complex timetable means that mortgages concluded before 1 july 2016 remain subject to the old regime, except for possible renegotiations.
Key definitions of a mortgage
The Ordinance of 2016 introduced a chapter dedicated to definitions in the Consumer Code (article L. 311-1), aimed at clarifying the terminology for consumer and property loans. Mastering this vocabulary is essential to understanding everyone's rights and obligations.
Lender, borrower, credit intermediary: who's who?
The Code precisely defines the parties involved in the credit transaction. The lender is any person who grants credit in the course of his commercial or professional activities. This mainly concerns banks and credit institutions. L'borrower (or consumer) is a natural person who is acting for a purpose unrelated to his or her commercial or professional activity. This notion of non-professional purpose is the cornerstone of protection. Finally, thecredit intermediary (the broker) is a person who, for a fee, assists in arranging credit without acting as a lender. The broker is subject to specific information and advice obligations.
Credit transaction, total cost and taeg: deciphering the terms
The legislator definescredit operation as the contract by which a lender grants credit in the form of a deferred payment, a loan or any other similar payment facility. This broad definition encompasses a variety of financing techniques. The total cost of credit is a key concept: it includes all the costs that the borrower has to bear in order to obtain the finance (interest, administration fees, commission, compulsory insurance costs, etc.).
This set of costs is summarised by the Annual Percentage Rate (APR)defined in article L. 314-1 of the French Consumer Code. Expressed as an annual percentage of the total amount of credit, the APR is the comparison tool par excellence. It must be included in all advertising and in the loan offer to enable borrowers to assess the real cost of the various proposals.
The personal scope of mortgage credit: who is protected?
Whether or not a borrower is entitled to protection depends on his or her status. The principle is to protect the person considered to be in a weak position vis-à-vis the credit professional.
Natural and legal persons: distinctions and specificities (sci, employers, professional sellers)
Protection is aimed primarily at the borrower natural person acting for non-business purposes. Loans intended to finance a professional activity are excluded, as stipulated in article L. 313-2 of the French Consumer Code. This applies in particular to property dealers and developers.
The question of legal entities is more subtle. Before 2016, case law tended to exclude them, including family property companies (SCIs), considering them to be professionals. However, the 2016 Order introduced a new feature to Article L. 313-1, 3°: the rules now apply to loans taken out by private legal entities (such as an SCI) when the credit is not intended to finance a professional activity. This provision, which runs counter to the previous logic of consumer law, extends protection to family-owned property investment companies (SCIs) buying a home for their partners.
As for the lender, it must act usual way. While banks are the first to be affected, an employer who frequently grants loans to its employees or a professional vendor who grants payment facilities may also qualify as a lender and be subject to the same obligations.
Co-borrowers
The situation becomes more complicated when there are several co-borrowers. If one of them takes out the loan for business purposes, the entire transaction falls outside the protective scope of the Consumer Code. The Court of Cassation has clarified this point by ruling that it is the purpose of the loan that takes precedence over the status of the borrowers (Civ. 1re, 8 July 1997, no. 95-11.500). Thus, a couple borrowing to finance mixed premises (a home and a professional practice for one of the spouses) could be refused the application of the protective regime.
The material scope of mortgage credit: which transactions are covered?
The law precisely defines not only the persons, but also the transactions that fall within the scope of the home loan system. The 2016 reform extended this scope.
Acquisition, construction and works: traditional operations
The traditional scope of application, inherited from the Scrivener Act and set out in Article L. 313-1, 1° of the French Consumer Code, covers loans to finance :
- The acquisition of residential or mixed-use (business and residential) property.
- Expenditure on building, repairing, improving or maintaining the property.
- The purchase of land for the construction of these buildings.
This includes traditional loans as well as subsidised loans (such as those from a Plan Epargne Logement) and bridging loans.
Loans secured by real estate collateral (mortgage, pdd, pledge)
The major innovation of the 2016 Order is the introduction of a new qualification criterion. Under article L. 313-1, 2°, the property credit regime now applies to any credit agreement granted to a consumer if it is secured by a mortgageA mortgage, a mortgage lender's lien (PPD), a mortgage pledge or any other comparable security on a residential property.
This extension has important practical implications, particularly for loans to finance building work. Previously, the applicable regime (consumer credit or home loan) depended on the amount of the loan. Today, a works loan, even for less than €75,000, will be classified as a mortgage if it is backed by a mortgage guarantee.
Excluded loans (zero-interest loans, interest-free and no-cost transactions)
Despite the extension of the scope of application, certain transactions remain excluded. In particular, article L. 313-2 of the French Consumer Code specifies that the protective regime does not apply to loans that are not subject to any interest or charges, apart from those intended to cover the cost of the guarantee. The effect of this provision is to exclude certain financing, such as the zero-rate loan (PTZ), from the formalities of the mortgage offer, even though it is often a component of an overall financing plan.
Individual loans: debt consolidation and bridging loans
The legislator has also clarified the regime applicable to specific financial transactions that may include a real estate component.
The legal framework for home loan consolidation
Credit consolidation (or credit repurchase) involves replacing several pre-existing loans (property, consumer, etc.) with a single loan. In the face of past uncertainties, articles L. 314-10 et seq. of the French Consumer Code lay down clear rules for determining the applicable regime.
There are two main criteria. Either the proportion of mortgages in the total of the regrouped loans is over 60 %In this case, the entire transaction is subject to mortgage rules (article L. 314-11). Or, whatever the arrangement, the pooling transaction is secured by a mortgage or similar charge on a residential property. In the latter case, the mechanism for attracting the property guarantee comes into full effect, and the rules governing home loans apply, regardless of the proportion of property loans in the purchase (article L. 314-12).
Bridging loans: integration into the scheme
A bridging loan is a short-term loan used to finance the purchase of a new property before the sale of the old one. Although it is a bridging loan, case law has long confirmed that it is fully subject to the protective provisions of the Consumer Code relating to property credit. It must therefore comply with the same formalities, particularly with regard to the preliminary offer of credit and the cooling-off period. This solution is logical, as it does finance a property transaction within the meaning of the law.
The scope of mortgage credit is therefore vast, and its contours, redrawn by recent legislation, require a careful analysis of each situation. For borrowers, ensuring that their project falls within this framework is a guarantee that they will benefit from essential protection. Given the complexity of these rules, the assistance of an expert lawyer in mortgage law is often essential for validating a financial package or contesting a credit institution's failings.
Sources
- Consumer Code, in particular articles L. 311-1, L. 313-1 et seq., L. 314-1 et seq.
- Order no. 2016-351 of 25 March 2016 on consumer credit agreements relating to immovable property for residential use.
- Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014.
- Law no. 79-596 of 13 July 1979 on information and protection for borrowers in the property sector (Scrivener law).
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