Mortgage loan: Can we borrow while earning the minimum wage?
On January 1, 2018, the minimum wage was automatically increased by 1.24%, going from 9.76 USD to 9.88 USD per hour, to reach 1498.5 USD gross per month, regardless of where we live. Capital lender calculated real estate purchasing power with the minimum wage in 12 cities in France and its evolution compared to 2010. Can we borrow while earning the minimum wage? What can people who earn the minimum wage buy? Study by Max Browne.
On January 1, the Smic was, in fact, upgraded by 1.24% to reach 9.88 USD gross per hour against 9.76 USD gross in 2017, i.e. 1,498.5 USD gross monthly (around 1,150 USD net against 1055 USD net in 2010). If we compare compared to 2010, the increase is only $ 1 gross ($ 8.86 gross / hour) or 12% … An increase which seems very small in view of the rise in prices of housing in particular. In 2017 alone, according to the Notaries of France, apartment prices increased by 5.1%, much more than the recent revaluation of the minimum wage by 1.24%…
Halved rates and 41% increase in borrowing capacity
However, in a context of falling rates, borrowing capacity with the minimum wage has increased since 2010 by 41%, going from $ 66,300 to more than $ 93,500, the rates having been more than halved. Indeed, credit rates have gone from 3.95% to 1.80% on average over 25 years, excluding borrower insurance.
Charge jump and remainder of life studied under a magnifying glass
“45% of our customers have incomes of less than $ 25,000 per year, and for 35% of them they are young people under the age of 30. It is therefore possible to borrow with income equivalent to the minimum wage provided that you do not have too high a debt ratio, ideally below 33%. Beyond the salary, the banks will study the charge jump, that is to say the surplus that the borrower will have to pay over his rent to repay his loan, and the remainder, which corresponds what he has left after all current charges have been deducted from salary, ”explains Max Browne, Director of Bank Relations at Capital lender.
From small studio to large T2
Given the prohibitive prices charged in Paris, a person earning the minimum wage unfortunately cannot find accommodation in the capital. Note that prices have soared by 39% in 7 years, going from 6,434 USD per square meter in 2010 to 8,940 USD in 2017. Possibly possible for a single person but too small for a household earning a single minimum wage. On the other hand, the Rouennais earning the minimum wage can seek a 44 square meters, the Grenoblois a 43 square meters, the Marseillais a 40 square meters, the Strasbourg residents a 37 square meters, the Rennais a 39 square meters, the Toulousains a 36 square meters , the Nantais a 35 square meters, the Lille a 31 square meters, and the Clermontois earning the minimum wage can afford a 56 square meters.
10% contribution, rate at 1.80% over 25 years and monthly payments of less than 400 USD
It is therefore possible to buy in 11 cities in France (excluding Paris) with the minimum wage in 2018 of areas between 26 and 56 square meters depending on the city, for a monthly payment equal to 33% of the minimum wage, or 387 USD. This allows the repayment of a credit over 25 years at 1.80% with 10% contribution to finance the various costs. FYI, in 2010, the monthly repayment capacity, under the same conditions was 348 USD for people receiving the minimum wage.