Repayments cannot usually exceed 35% of income at present
A dozen MPs have signed a proposed law aimed at making mortgage rules more flexible.
It aims to soften the rule that banks should not lend if mortgage repayments, insurance and other debt commitments will exceed 35% of a borrower’s income.
Banks already have some freedom with regard to this and in 20% of mortgages provided, they are allowed to depart from the rule.
The new law proposes that banks should be able to lend to people even if they will be paying more than 35% of their income in repayments, as long as the analysis of their overall situation shows that they would have sufficient reste à vivre and they do not present a “risk of becoming excessively indebted”.
This refers to the amount left over after fixed outgoings, including loan repayments, utility bills and the mortgage.
In the explanatory notes to the proposed law, which is led by centrist Lionel Causse, the proponents say that two people could have the same apparent taux d’effort (debt to income ratio) but very different levels of reste à vivire.
This means it is a necessary, and “not merely useful” component of deciding on their risk of going into debt, they say.
New mortgage rules affect many
This could apply, for example, to some higher earners buying expensive properties, who may still maintain an adequate standard of living despite repayments exceeding 35% of income and are unlikely to fall into excessive debt as a result.
However, a range of household profiles could potentially benefit. These include retired couples with substantial savings, investments or proceeds from the sale of a property abroad, but relatively modest pension incomes.
Older borrowers may also have fewer regular outgoings than younger households, having paid off car loans and no longer facing childcare costs.
More broadly, those with complex financial arrangements, such as self-employed people with irregular incomes or borrowers with significant overseas income or assets, could benefit if banks are able to consider their overall financial situation rather than relying primarily on traditional French salary and pension criteria.
The idea is largely supported by the property industry, in a context in which property prices have often risen more than salaries in recent years, and in which interest rates are higher than those seen a few years ago.
This has excluded many would-be buyers who are not in a position to ease the situation by agreeing to longer loans (usually limited to a maximum of 25-27 for non-new build properties), as young first-time buyers can, or who cannot raise larger deposits, as well-off investors can.
The president of estate agent’s group iad told journalists that it was “a shame” the current rules sometimes blocked people who could cope with higher levels of debt.
However, he said it would be preferable if the concept of reste à vivre was clarified further during the legislative process, to avoid people getting into difficulty.
“The measure could free up a large number of projects,” according to loan brokers CAFPI.
The concept itself is not, however, new and was already considered to some extent.
Also, as mentioned, banks already have some flexibility, under existing rules dating from 2021, being allowed to depart from the 35% rule in a portion of loans they give.