Moving into retirement age leads to lower incomes. This can make real estate projects for seniors difficult to finance. Not to mention the much greater weight of a borrower’s insurance when you are over 60…
Borrowing at over 60 is possible but rare
At loan broker Vousfinancer, only 12% of borrowers are over the age of 50 in 2020, compared to 17% in 2019. A decreasing number in the context of stricter terms of credit, particularly regarding the maximum debt ratio (now limited to 35%) And reduce the usury rate, which is the maximum rate beyond which banks are not allowed to lend money. Only 3% are over the age of 60.
At loan broker Empruntis, in 2021, people aged 50 to 59 were 8.40% of borrowers, while only 2.11% of borrowers were 60 and over.
Low income that banks take into account
Older people have incomes that are expected to decline at the time of retirement. “So, starting at age 55, when applying for a mortgage, almost all banks require an estimate of the amount of the pension that will be paid, which is evidence that must be requested from your pension institution, Youfinance notes. Depending on the age of the borrower and his retirement date, they take Take into account either full salary, or more often income at the time of retirement, to calculate the retirement rate. »
One solution: to create a graded loan, allowing the term of credit to be reduced by 30% at the time of retirement, “thereby adapting his monthly payments to the decrease in his income to keep despite everything, a comfortable standard of living,” confirms Sandrine Allonier, Director of Studies In Vousfinancer.
Borrower insurance weight
“One of the main themes for seniors who want to invest in real estate is loan insurance, because the older you get, the more likely you are to have health problems, and therefore the more expensive insurance will be…” Buchett, managing director of Vousfinancer, notes.
Thus, due to the higher rate of insurance on loans, but also due to the shorter loan periods for seniors (average 15 years), the weight of insurance exceeds the APR (global effective annual rate) of the usury rate, which is the maximum rate beyond which banks are not allowed to lend Money. This can lead to loan rejection. “One solution might be to find a bank where death insurance is optional, and therefore not included in the calculation of the APR,” Sandrine Allonier explains.
Another solution: insure only the youngest or healthy spouse.
So, what option for seniors: use their savings or borrow?
According to Vousfinancer, seniors have every interest in borrowing rather than hoarding their investment if they want to invest in real estate. Several reasons for this:
• Seniors are good bank profiles because they therefore borrow for short periods, have contributions, have life insurance or already own, “which provides guarantees to the bank, and often the fees are lower because they no longer have dependent children…”, Sandrine Alonier comments .
• The rates are very low, especially in the short term: on average, 0.8% over 10 years, 1% over 15 years, and 1.20% over 20 years. In addition, credit rates do not depend on the age of the borrower (except for an exceptional reduction for those under 35 years old), but only on the contribution or income. So seniors are not penalized for credit rate.
• By borrowing, they take advantage of the leverage effect of credit and increase their assets.
• In the event of death, the property is paid in full by insurance and transferred to the heirs. “It’s also a way to prepare for the succession of your life,” Vousfinancer asserts.
What kind of goods do old people buy?
People over 50 years old represent a small percentage of borrowers. According to data from mortgage company Empruntis, in 2021, people aged 50/59 borrowed its services as first-time buyers at a rate of 40.63% to purchase a primary residence. Second-time buyers (23.25%) also purchased a primary residence.
Others borrowed for rental investment (at a rate of 23.21%) or for the purchase of a second home (at a rate of 12.91%).
Their average monthly income fluctuates between €5,061 (for first-time buyers) and €8,966 (for those who have purchased a primary residence), with an average contribution ranging from €62,301 (as part of a rental investment) to €115,945. (For second time buyers of a major home).
Those over the age of 60 were predominantly first-time buyers who purchased a primary residence (at 34.45%), then second-time buyers who also purchased a primary residence (at 26.01%). The average monthly income is lower, ranging from 5,043 euros (for first-time buyers) to 7,423 euros (for a second home buyer), with higher average contributions coming in at nearly 163,000 euros.