How do French lenders calculate your maximum mortgage amount?

Posted on 16 Mar 2020 in Market
How do French lenders calculate your maximum mortgage amount?

1 – How to easily calculate a rough budget?

To evaluate you maximum mortgage amount for a repayment product, simply follow this formula:

Here is the best way to see quickly if your real estate project is achievable. Have also in mind that the result is just an estimation, for a more precise result, we recommend you to use our mortgage calculator which can be found here. Moreover, French banks require at least 15%-20% deposit for non-residents, it can rise to 30% or 40% for non-EU residents.

What we are looking to see is if your existing monthly payments for loans and mortgages exceeds one third of gross monthly income.This is calculated by dividing your outgoings for debt payments by your gross salaried income or net profit from self-employed income.

For example, if you earn the equivalent of €3,000 per month, a French bank will not allow your total payments for your existing borrowings and the future mortgage to exceed €1,000 per month for a second home – €1,000 being 33% of your gross monthly income.

Types of outgoings which may be taken into consideration by French banks

Payments for loans, personal loans, car loans, credit cards (unless cleared each month), mortgages, alimony, hire purchase, insurance policies, rent.

French banks do not take school fees into consideration for the debt ratio.

Quick calculation of the Cost per month per 100k borrowed

10 years repayment product = 925 per month

15 years repayment product = 650 per month

20 years repayment product = 500 per month

25 years repayment product = 425 per month

2 – Interest only or repayment: Does it work the same way?

Interest only products are extremely uncommon for individuals in France. Those offers are often only available to companies and high net worth individuals since they are made to obtain the lowest monthly repayment as possible. For the mortgage estimation, it is fairly similar to repayment but with some modified variables.

Quick calculation of the Cost per month per 100k borrowed 

Interest-only mortgage product     250 per month

3 – Rental income: How do French banks take it into account?

Up to 80% of the rental income associated with your existing investment properties is taken into consideration when calculating affordability. Sometimes the rental income is deducted from the mortgage payment – which is advantageous to the borrower, though more conservative lenders may simply take existing rental income and add it to the borrower’s main income, which would effectively mean that only 25% of the rental income is being taken into consideration when calculating the debt ratio.

4 – What is happening to my debt-to-income ratio if I want to rent out the property I am purchasing? 

The Anglo-Saxon notion of a buy-to-let where the property is a standalone investment has a limited shelf-life in Anglo-Saxon markets who are moving closer to the French model where there is no separation between the investment and the borrower’s personal income situation.

The positive point here is that all French mortgages work both for second homes and rental properties. 

The downside is that in most cases the rental income from your new property purchase in France will not be taken into consideration. This means a borrower’s full profile is required when considering a property purchase in France.

Back to Journal