The new rules are forcing banks to be stricter in accepting mortgages. This can be a barrier to obtaining loans, particularly for investors.
1 . agoVerse January 2022, the criteria for accepting mortgage loans are tightened. The recommendations of the High Council for Financial Stability (HCSF) have already become mandatory for all French banking institutions. They require that the debt ratio (percentage of fees – monthly loan repayment – in relation to income) remains for individuals less than 35%regardless of their income. In addition, the loan period is limited to 25 years. Banks can grant exceptions, but only within 20% of all credits. Note that the rates are currently, on average, about 1% over 15 years, 1.15% over 20 years and 1.40% over 25 years. The HCSF established these rules in order to prevent the possible slippage observed during the first decade of the twenty-first century.
“This action alone undermines a certain number of files, in particular those of regular buyers, Patrick Cuvier, Ingénierie Concept Finance broker, notes, But the most significant impact will affect rental investments, due to the new method of calculating the debt ratio in the presence of property income. » In fact, the HCSF’s recommendation with the greatest consequences for investors who want to buy a home to rent has to do with the new way to account for reduced rents in calculating the debt ratio.
Most sanctioned rental investors
There are two ways to factor future rent into an investor’s budget. We can :
- Either you add rents to the amount of income (the standard method);
- Or subtract it from the amount of fees (differential method).
At first glance, the two methods seem identical. In fact, the first is much more unfavorable to investors, since it reduces the relative share of rents by incorporating it into the income mass and thus increases the debt ratio.
Let’s take the case where rents bring in 400 euros per month, income 2000 euros and fees 950 euros (500 euros monthly payment for a new loan and 450 euros for an old loan).
By the standard method, the debt ratio is determined as follows:
Expenses / Income x 100
= 950 / (2000 + 400) x 100
By differential method the debt ratio is determined as follows:
Expenses / Income x 100
= (950 – 400) / 2000 x 100
Note that in reality, banks will keep only 70-80% of the amount of rents in estimating the debt ratio.
It is clear that with the same starting data, the debt ratio is contained under the 35% barrier by the differential method, but exceeds it by the standard method. In this second case, the loan that would have been accepted yesterday today, with the new recommendations of the Social Welfare Center, will not be accepted. The result: If you haven’t paid off your primary or secondary home loan yet, rental investing is now much more complicated.