Rental investment: the end of the differential calculation of the debt ratio has ousted 1 project out of 4

The differential debt ratio: an advantageous method of calculation for rental investors which is no longer authorized

The differential calculation of the debt ratio is an advantageous alternative to the traditional calculation. Indeed, the investor balance is added to the income, which corresponds to the difference between the rental income and the associated charges, which makes it lower than the traditional debt ratio calculated by adding the rental charges to the total charges and the expected rental income. to total income.

The HCSF standards made mandatory in January 2022 with the stated objective of moderating a real estate market considered to be overheating included the clarification of the method of calculating the debt ratio, excluding the possibility of using the differential calculation, alongside the prohibition for banks to grant loans to borrowers whose debt ratio exceeds 35%.

This therefore had a non-negligible impact on the rental investment.

Nearly one in four rental projects made impossible by this change in the method of calculation

By observing the projects supported by Pretto between January 2021 and December 2021, we observed that 23% of the projects had needed differential calculation to respect the 35% debt limit.

This sub-category of investors made unfinanceable had a profile similar to other investors, so this market development did not particularly modify the profile of rental investors, but modified that of projects:

• The profiles of borrowers who needed the differential debt ratio to get their project through were similar in terms of age (36 years on average), income (€100k), and savings (€115k), to those whose project respected the 35% ceiling with the traditional method of calculating the debt ratio
• On the other hand, the projects that required the use of differential calculus were much larger, with goods almost twice as expensive on average (400k€ against 220k€ euros).

With the rise in rates, and in line with exclusion across the entire market, a growing share of projects could no longer be carried out

As the new regulations do not exclude profiles but projects, the share of rental investments in overall demand was not impacted at the beginning of 2022, remaining stable around 11%, but with projects of reduced size. However, from the second half of 2022 and with the tightening of the banking offer linked to the rise in interest rates, the share of rental investments in the projects studied by Pretto on the other hand fell more significantly, these projects being more difficult to fund.

Coupled with the end of the differential calculation of the debt ratio, the rise in interest rates has on the other hand greatly reduced the borrowing capacity of rental investors, this drop being able to represent up to ⅓ of the initial borrowing capacity. 3/4 of this effect (-24%) is linked to the rise in rates and concerns all borrowers, and 1/4 is linked to the end of the calculation of the differential debt ratio included in the HCSF standards, which impacted 1 out of 4 rental investors:

• With the rise in rates (from 1,1% at the end of 2021 to 3,5% today), all borrowers have lost an average of 24% in borrowing capacity.
• The effect is even stronger for the part of rental investors who suffered at the same time from the end of the differential calculation of the debt ratio. These investors borrowed on average with monthly payments representing 39% of their income in conventional debt ratio. With the end of the differential calculation, they had to reduce their maximum monthly payment to respect the 35%, that is to say a drop in borrowing capacity of an additional 10%, bringing the total drop to almost ⅓.