France's High Council for Financial Stability has recommended that banks rein in their mortgage lending policies, saying it could ask them to hold more capital if they do not comply to market standards.
The council, which oversees the French financial system and is headed by the French finance minister, called on banks to grant mortgages that accounted for no more than 33% of a borrower's revenues and last no longer than 25 years, as mortgage lending grew by 6.7% in October.
It had previously warned of an easing in lending standards, with an increase in housing loans granted based on 35% of revenues, less than 5% down payment and a rise in long-term mortgages.
The authority said banks were exposing themselves to new loans and existing loans with low profitability, warning lenders it would require them to raise capital levels should they not adhere to lending practices standards.
A large number of French borrowers have been renegotiating fixed-rate mortgages, which account for the vast majority of housing loans in France, and there is strong competition among lenders to gain share in the mortgage market.
The council has previously warned about the fast pace of overall lending growth in France and has twice raised the countercyclical capital buffer to cool the overheating market.