2023-11-30 03:00:00
The best way to improve your standard of living is to reduce your debt. The debt ratio is also a central indicator if you want to take out a property loan. The rise in interest rates significantly penalizes the debt ratio, but it is possible to optimize it by using all the levers available in 2023.
To find out the levers at your disposal, we provide a free online simulation which will allow you to take stock of your situation:
The different incomes taken into account when calculating the debt ratio
The debt ratio, or “effort rate” in financial jargon, is an essential marker for banks, because it allows them to verify that the borrowing household will be able to meet its mortgage repayment obligations.
As for income, the following are taken into account: net monthly salary before tax and other similar income, rental income and financial income. It is commonly accepted that the debt ratio should not exceed a third of household income, but in reality, it is strictly regulated by the regulator.
Since January 2022, the High Financial Stability Council (HCSF) prohibits banks from lending beyond a debt ratio of 35% of net income before tax and tax charges included.
The HCSF grants banks a margin of flexibility up to 20% of their quarterly real estate loan production, which allows them to deviate from lending rules.
In this flexibility, 70% of the financing is intended for main residences, with at least 30% being first-time buyers.
If the debt rate is there to ensure that households are not in difficulty following the granting of a loan, in 2023, it has been the subject of debate and criticism, because it is considered a point blocking both the production of credit and the good health of the real estate market.
To find out the levers at your disposal, we provide a free online simulation which will allow you to take stock of your situation:
How to obtain the lowest possible debt ratio?
The average rate over 20 years is currently between 3.50% and 4%. Provided you are purchasing a new or old property with a commitment to renovation work, you can reduce the rate by 10 to 30 basis points by negotiating correctly (provided you have a file that allows it).
Borrower insurance must necessarily be included in the calculation of the debt ratio. However, this essential coverage to secure the sums borrowed represents on average a third of the total cost of a property loan, making it the second largest expense following interest.
If you borrow €250,000 over 20 years at a rate of 3.80%, covered by bank insurance at a rate of 0.38%, your debt ratio is 31.35%. With delegated insurance at a rate of 0.10%, the APR increases to 4.03% and the debt rate to 30.19%. You also have the possibility of lowering your debt ratio by relying on the Lemoine law of 2022, which allows you to do so at any time and free of charge, without waiting for maturity.
The option of repurchase or consolidation of credits
If you have already taken out loans, there are different scenarios:
You can no longer meet your monthly payments to maintain your standard of living Your monthly payments are too high, they prevent you from taking out new credit
In these two cases, repurchase or consolidation of credit might be the solution to reduce your level of debt. Before taking any steps, you can do a free online simulation to take stock of your situation and find out if this system might be interesting for you.
Precautions to take before applying for credit
In the months preceding a credit request, it is better to be cautious regarding your debt ratio. Real estate loans as well as monthly payments linked to other loans, internet and telephone subscriptions, home insurance or even alimony are taken into account in the calculation of the debt ratio.
Repay other loans: It is preferable to repay existing loans in advance in order to reduce your debt ratio, even if it means reducing your personal contribution.
Negotiate your rate with your bank: Credit is relatively expensive but all the banks are back on the market, so it is possible to put them in competition.
Preparing your file carefully before applying for a home loan is essential. As much as taking into account all the criteria influencing the debt ratio in order to optimize your chances of obtaining advantageous financing for your real estate project in 2023.
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