How much can I borrow in France?
To decide this, a French bank will calculate the maximum monthly mortgage cost that you can afford. This is calculated by the following formula and is sometimes known as “the 33% rule”:
Maximum monthly mortgage cost = Income x 0.33 – existing financial expenses.
How is income calculated?
This is calculated on your “net imposable” which broadly means after social charges but before income tax. If you are a French resident, then this will be on your payslip or French income tax bill. If you are not fiscally resident in France, then the amount will usually be your gross income (only stable incomes included) minus an allowance of approximately 8 to 10%.
How are my existing financial expenses calculated?
This is the monthly cost of any existing loans (including any mandatory insurances), rent, leases and child maintenance. Regular direct debits, such as phone and utility bills, are not included in this calculation. Only expenses which will remain after the issue of the new mortgage will be included.
What is included in the maximum monthly mortgage cost?
This is based on the total cost of the mortgage, which includes fees and insurances. French banks insist on taking mortgage life insurance for French residents but often this is not the case for non-residents.
Exceptions to the 33% rule
In December 2019, France’s financial stability authority, le Haut Conseil de Stabilité Financière (HCSF), issued a statement warning against increasingly lenient lending practices and advised banks and other lenders to follow the 33% rule, but it stated that up to 15% of new loans could exceed this rule, mainly in the cases of first-time buyers and those buying their primary residence, to an absolute limit of seven times your annual revenue. The main indication as to whether your maximum financial costs allowed will be 33%, higher or lower, will be your “reste à vivre”, or your “rest to live on”.
Reste à vivre / rest to live on
This is your monthly income minus your monthly costs, including the costs of your new loan, as described above. If this is significant then you could exceed the 33% rule, if this is a small amount then your limit may be lower than 33%. Whether the bank judges that you have a sufficient amount of money to live on will partly depend on whether you have any children or other financial dependants.
The amount you can borrow will also be constrained by your deposit. Generally, French banks expect you to pay for the notary and other transaction costs, which amount to approximately 10% of the property purchase. For a non-resident, the banks will require an additional deposit of approximately 15%, so 25% in total. The banks will expect you to have some money left over after the property purchase. For very large mortgages, a 50% deposit is often required. In general, the greater the deposit, the lower the mortgage interest rate you will obtain.
The bank will look at your overall profile, which includes factors such as your bank account management (no excessive use of overdrafts or missed payments), whether the purchase will greatly increase your monthly costs, your age and your career. In terms of mortgage costs, shorter terms and higher incomes will generally increase the competitiveness of the interest rate you can obtain.
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If you’d like to find out more and starts the process to purchase a French property, do not hesitate to get in touch.
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