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Since January 1, 2022, the conditions for granting mortgages have been significantly tightened. Indeed, the High Council for Financial Stability (HCSF), the supervisory body responsible for supervising the French financial system as a whole, which aims to maintain the stability of the financial system so that it can support economic growth, has taken up the topic of conditions for granting mortgage loans. This body that sets the general framework for bank loans and the criteria for accepting loans has tightened the screws, under what terms can we borrow today? What are the rules to follow to accept your mortgage file? In this article, discover our three tips to put the odds in your favor.
35% max effort rate
First, we used to say that the monthly loan installments should correspond to a third of the income of the borrower(s), as was the case before January 1, 2022. But now the maximum debt ratio should not exceed 35% of the net monthly income before taxes, just over about a third of the income.
Note, however, that this amount now also includes the borrower’s insurance, which is actually more restrictive for borrowers who can owe one time up to 33% not counting the borrower’s insurance.
Credit period less than or equal to 25 years
Another change in 2022: the term of the mortgage was reduced. Indeed, the maximum term of credit imposed by the SWF is now 25 years. However, there are some exceptions to sales mortgages in the case of future completion, or Vefa, and individual home construction contracts. For all these special cases, the maximum loan term is now 27 years.
Note that this increase to the 35% maximum rate of effort and the reduction of the mortgage term to 25 years is an obligation of the banks that must compulsorily apply these criteria to 80% of their file. 20% of credit offers issued each quarter may detract from this rule, but beware, 80% of the allowable margin of flexibility should be for prime homebuyers and 30% of them should be first-time buyers. So the banks’ room to maneuver is very small.
Also Read: Becoming a Property Owner: What It Really Costs
A contribution to cover at least the documentation and agency fees
Have these new provisions caused disruption in the granting of mortgages? Not really because often banks have already implemented these eligibility criteria and these measures have been announced and anticipated.
Remember that banks are more and more careful about the contribution which should cover both the agency fee and notary fee, and even an ideal part of the sale price. In fact, the higher the contribution, the shorter the term of the loan and the lower the amount borrowed, making it easy to fall below the crucial 35% mark.