While interest rates are currently blocking the market, despite their rise, there is another brake on the financing of real estate projects: the maximum household debt ratio (or interest rate).
Since 1eh In January 2022, the High Council for Financial Stability (HCSF), the body responsible for overseeing the financial system, set it at 35% (including borrower insurance). This means that an applicant’s finance file cannot be accepted by a financial institution if it exceeds this limit.
With the increase in credit interest rates, this therefore excludes many borrowers from the credit market. Update on the situation with the property loan broker Meilleurtaux.
An increase in non-fundable cases in one year
The increase in credit rates continues, going from 1.20% over 20 years in January 2022 to 2.30% in October 2022, according to broker Meilleurtaux, i.e. a return to 2015 levels.
“This leads to a decrease in financeable files of more than 10% in one year (-13% since January 2021). It is a mechanical and mathematical impact,” emphasizes Maël Bernier, spokesperson and communications director of Meilleurtaux.
Today, only 58% of files passing through this broker meet the requirement of the maximum debt ratio of 35%, while they were 72% in January 2021 and 69% in October 2021.
As for projects that cannot be financed due to a debt ratio above 39%, they represent almost 30% of cases in October 2022, compared to 21% in January 2021 and 22% in October 2021.
A borrowing capacity that collapses in 10 months
Take the example of a couple earning €4,000 net per month who take out a loan rate of 1.10% in January 2022, with borrowers’ insurance of 0.34% (at 50% on each head). He could repay up to €1,400 every month by borrowing up to €285,000 while respecting the maximum debt-to-income ratio of 35%.
With the increase in rates, to 2.30% in October 2022, for the same loan of €285,000, the monthly payments for this couple amount to €1,563. The debt ratio is then exceeded and reaches 39%.
“This file has therefore become unfinanceable,” emphasizes Maël Bernier. In October 2022, if this couple still wants to borrow while maintaining the same monthly payment of €1,400 to respect the maximum debt ratio, with the increase in rates, their borrowing capacity collapses to €255,000, i.e. €30,000 less in 10 months! »