Falling budgets or unfundable projects, the equation becomes complicated for borrowers, Real Estate News/Analysis


Since the beginning of the year, the rise in mortgage rates has been more and more brutal. Still very low in January, rates more than doubled after 9 consecutive months of increases from February to October, in parallel with the sharp rise in bond rates (10-year OATs) which just exceeded 3% on Friday, their highest since almost 10 years. To sum up, while we could still quite easily finance ourselves at 1% over 20 years at the start of 2022, the banks are now offering 2.2% on average and it is very likely that this upward movement will continue because inflation there participates by directly influencing monetary policies which have no other solution than to raise their key rates.

Faced with real estate prices which have risen sharply in recent years, the rise in interest rates automatically excludes more borrowers exceeding a debt ratio of 35% when they do not have the possibility of further extending the duration of their loan. (maximum 25 years in the old) or to mobilize an additional contribution. This is particularly the case for first-time buyers or investors. It should indeed be remembered that this debt ratio imposed by the banks represents the ratio between the monthly repayment of the loan (insurance included) and the income of the borrower.

To fully understand the impact of this situation, we have calculated in the tables below the difference in monthly repayments, necessary income, cost of credit and borrowing capacity for a borrowing period of 20 years in taking the level of rates as it was in January 2022 (1%), the current level (2.20%) and the level that they could reach at the beginning of 2023 (3%) if the rise continues at the same pace.

Monthly payments, necessary income and cost of credit

Borrowing €200,000 over 20 years at the rate of 1% required, for example, to repay €953 each month (insurance included at 0.20%). Today, we have already gone to €1,064 per month with rates at 2.20% and we could reach €1,143 tomorrow with rates at 3%. At the same time, the cost of such a loan (excluding insurance) would respectively increase from €20,749 to €47,397 then to €66,207.

This also means that with the same purchase budget, it is necessary today to justify about 3,040 € of monthly income so as not to exceed the debt ratio of 35% imposed as a general rule by the banks, whereas 2,720 € per month was enough before and that it may take tomorrow not far from 3.265 €.

Cost of a loan of €200,000 over 20 years
Money & You
1% rate2.20% rate3% ratePotential difference over a little over 1 year
Monthly payment (insurance included at 0.20%)953 €€1,0641.143 €+189 €
Monthly income required2.720 €€3,0403.265 €+545 €
Accumulated interest20.749 €47.397 €66.207 €+45.458 €

Borrowing capacity over 20 years

For a given salary, the rise in rates therefore reduces borrowing capacity, unless the duration of the loan is extended or more personal contribution is mobilized. By remaining over a period of 20 years, we see that a monthly repayment of 1,000 € (insurance included at 0.20%) allowed some time ago to borrow 210,000 €, an amount already fallen to 188,000 € today. today and maybe €175,000 tomorrow.

Borrowing capacity of a monthly payment of €1,000 over 20 years (insurance included)
Money & You
1% rate2.20% rate3% ratePotential difference over a little over 1 year
borrowing capacity€210,000188.000 €€175,000-€35,000
Total cost of credit30.187 €52.073€64.932 €+€37,744

Borrowing capacity over 25 years

By pushing the reasoning over 25 years, the maximum borrowing period for a purchase in the old, we can even better measure the loss of borrowing capacity linked to the rise in rates which are already around 2 .50%. For the same monthly repayment of €1,000, one could borrow up to €245,500 at the beginning of 2022 compared to €215,000 today and perhaps less than €200,000 in a few months. We would thus arrive at a budget difference of almost €50,000 which can correspond to one part less when it is not two in certain regions. All this with a cost of credit which is soaring.

Borrowing capacity of a monthly payment of €1,000 over 25 years (insurance included)
Money & You
1.3% rate2.5% rate3.3% ratePotential difference over a little over 1 year
borrowing capacity€245,500€215,000€197,000-€48,500
Total cost of credit54.458 €85.108 €€101,417+46.959 €


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