While interest rates continue to rise and access to mortgages remains difficult, young borrowers are particularly affected by the current climate.
Who can still borrow in 2023? If since February 1, the new monthly calculation of the usury rate, the maximum all-inclusive rate above which a bank cannot lend, should unblock the files of certain borrowers, one category remains in difficulty: first-time buyers. It is indeed difficult today to embark on a first real estate purchase.
Several phenomena, put end to end, come to explain this situation. Like all other borrowers, first-time buyers are restricted by the measures of the High Council for Financial Stability (HCSF) applied since January 1, 2022. Thus, the borrowers’ effort rate, i.e. the ratio of their borrowing costs to their income must not exceed 35%. If this obligation aims above all to protect them against too heavy monthly payments to assume, it is however limiting when defining the envelope of its real estate project.
A rise in rates that is cutting into real estate purchasing power
The second blocking factor is the rise in credit rates that has been going on for a year. Thus, a 20-year loan which stood at 1.08% in February 2022 is now trading at 2.90%. The increase is the same over 25 years, with a rate going from 1.23% to 3% over the same period. Imagine a couple in their thirties who have a cumulative salary of 4200 euros net per month. With a rate of 3% he will be able to borrow 252,693 euros. A year ago, with a rate of 1.23%, its borrowing capacity amounted to 305,371 euros. However, for their part, real estate prices continue to resist.
Unsurprisingly, the rise in interest rates has a negative impact on the borrowing capacity of French households. Faced with this, the solution is to increase its intake. A recent study by the broker Meilleurtaux revealed an edifying fact: between 2019 and 2022, the contribution of 20-29 year olds increased from 30,813 to 37,511 euros on average. Over the same period, borrowers between 30 and 39 years old saw their average contribution soar, from 44,356 to 64,874 euros. To acquire the property of their dreams, the oldest borrowers can therefore increase their contribution significantly. Younger borrowers must make concessions, like first-time buyers in Paris, forced to sacrifice an average of 38% of living space when switching between rental and purchase.
Modest first-time buyers have less access to credit
The difficulties of first-time buyers also depend on the geographical area. In its January 2023 update, the broker Cafpi notes that Paris remains the least accessible city for first-time buyers with the average loan amount (389,885 euros) and the contribution rate (26.7%) the highest in France, the Hauts-de-France region is the one where the average loan is the lowest, 204,935 euros, just like the contribution rate (13.7%). We also find the Grand-Est region, where the average loan amount reached 207,232 euros, down 3% compared to the second half of 2021, adds Olivier Lendrevie, president of Cafpi.
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Still, young borrowers continue to dream of buying real estate. According to the Banque de France, the share of first-time buyers in the production of housing loans for the acquisition of a main residence in November 2022 was 48.8%, compared to 46.2% in January 2020.
A figure nonetheless misleading. Because over the same period, the share of low-income households (those whose standard of living is between 60 and 90% of the median standard of living, editor’s note) in first-time buyers it goes from 27% in January 2020 to 20.4% in November 2022. And this share fell by 3 points, from 23.4% to 20.4% between March and November 2022. What is the profile of a first-time buyer today? According to a study conducted in January 2023 by La Centrale de Financement, the latter is 32 years old, in a household with an annual income of 46,855 euros. Its contribution is 47,574 euros for a loan lasting 23 years and 5 months on average.
Rising rates mean that credit is becoming more and more complicated for first-time buyers, with borrowing conditions that are restrictive, while young people want to become owners, concludes Saskia Fiszel, co-founder of Virgil, a company that helps young working people gain access to property. We see that the purchase is more and more difficult for a first-time buyer. However, we must do it if we can because we know that the rates are rising, but we don’t know how far, or if the prices will fall and by how much.
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