As a result of the law that has just been passed regarding income tax in France, it is understandable that taxpayers are wondering whether or not the French mortgage market will be affected.
Until now, France has had a system in place for income tax collection that requires taxpayers to pay their tax in a retroactive way, meaning that they pay up to three times a year (the following year) and not on a monthly basis. Emmanuel Macron has now confirmed that from January 2019, tax will be automatically deducted from taxpayers’ salaries each month in real time, known in French as ‘le prélèvement à la source’, the same as the UK system.
With this announcement, some concerns have arisen with regard to purchasing power for real estate purchases. Until now, banks have calculated potential borrowers’ affordability capacity regardless of the income tax, measuring the capacity to borrow using net income and deducting monthly charges as a case by case.
Now that income tax will be deducted directly from monthly salaries, there is concern that there will be a loss of purchasing power due to the banks’ new calculations, though any move to this new calculation does not yet have a large take-up.
HSBC have started adapting to this measure and promised to take into consideration the after-tax take-home pay when the new regulation comes into place in January 2019. However, we haven’t heard from other banks so far.
From a psychological perspective, buyers may feel less well off which could dampen the enthusiasm in the market that we have seen in the recent months due to the low mortgage rates during summer.