Mortgage rates have dropped to an average of 3.4% for 20-year loans, enhancing borrowing capacities and potentially saving borrowers thousands. This decline is attributed to the European Central Bank’s lower key rates amid slowing inflation. To secure loans of €250,000, €400,000, and €600,000, minimum monthly net incomes of €4,355, €6,968, and €10,452 are required, respectively, reflecting significant improvements in borrowing potential since 2023.
Positive Trends for Mortgage Borrowers
Great news is emerging for those seeking mortgages! Since the start of the year, mortgage rates have been on a steady decline, averaging around 3.4% in December for 20-year loans, as reported by the broker Vousfinancer. This decline, averaging a full point since January 2024, has significantly boosted borrowing capacity for many, potentially saving borrowers thousands of euros. The primary reason for this decrease is the European Central Bank’s (ECB) decision to lower its key rates, reflecting a trend of slowing inflation. This strategic move aims to reignite lending activities among banks. “The improvement is particularly advantageous for top-tier profiles and somewhat beneficial for first-time buyers,” states Sandrine Allonier, a representative from VousFinancer.
Understanding Income Requirements for Borrowing
In light of these favorable conditions, we requested VousFinancer to simulate loan scenarios to determine the minimum income required to borrow amounts of €250,000, €400,000, and €600,000. These calculations were based on a 20-year loan with the prevailing average rate of 3.40%, along with a personal contribution of 10% of the total loan amount. Additionally, we included income thresholds needed for these same amounts in September 2023 and September 2024, allowing us to illustrate the significant enhancement in borrowing potential over the last year.
It’s important to note that the debt ratio for households is capped at 33% of their income (excluding insurance) as mandated by the High Council for Financial Stability (HCSF). To qualify for a €250,000 loan spread over 20 years in December 2024, a household would need to earn a minimum net income of €4,355 per month, as their monthly payments would amount to €1,437, aligning with the maximum effort rate permitted by the HCSF. For context, this figure was €4,711 in September 2023 when interest rates were higher at 4.30%.
If you’re eyeing a property valued at €400,000 and can contribute €40,000 personally, you will need a net monthly income of at least €6,968 to secure a mortgage for the desired amount. This corresponds to a monthly payment of €4,355, which represents 33% of the income before insurance deductions. Couples can combine their incomes to meet this requirement, provided the total reaches €6,968 per month. Lastly, those aiming to borrow €600,000 should be prepared for substantial income requirements, as a monthly income of at least €10,452 is necessary to increase the chances of securing such a loan.