What you can buy on the ‘Smic’

Because of the way mortgage rates work in France, the record low levels of interest rates mean that even someone on the minimum wage can afford to buy property

With the ‘Smic’ minimum wage at €9.88 an hour or €1,498.5 gross a month, that means being able to buy a small flat in 12 major cities across France – although it would extremely small in Paris, at just 10m2 it would be just large enough to be legal for renting out.

Unlike the UK, where the rate fluctuates with the bank rate, in France mortgage interest rates are generally set for the period of the loan, called Prêt Immobilier à Taux Fixe.

It means a buyer, even on the lowest of incomes, knows exactly what they will be repaying for years ahead – and if they can afford to do so.

Mortgage rates are still at near record lows, so buyers who have saved a 10% deposit and have good employment and loan records can borrow at an average of 1.4% over 15 years, 1.62% over 20 years and 1.85% over 25 years.

Looking at the market, mortgage broker Vousfinancer said that while the Smic has risen by only 12% since 2010 (from €8.86 to €9.88) the fall in mortgage rates – falling from 3.95% for a 25-year mortgage to 1.85% today – means people on the minimum wage have actually seen their purchasing power rise 41% in that time.

In 2010 the borrowing capacity of someone on the Smic – finance houses use a rough calculation of 33% of income – was €348 and someone able to repay this each month would be able to borrow €66,300 but the fall in rates means that the equivalent borrowing capacity today of €387 can now borrow up to €93,500.

Vousfinancer banking relations director Sandrine Allon­ier, the author of the study, said that “45% of our clients have earnings of under €25,000 a year and 35% of them are under 30s.

“It is possible to borrow while earning the equivalent of the Smic as long as the client’s overall debt ratio with the mortgage is below 33%.

“Beyond the pay, banks will look at the extra costs, that is the extra the borrower will have to pay in relation to their rent to repay the loan, plus what is left over to live on after other expenses are deducted.”

Working with figures from the Notaires de France, she said this allowed the purchase of a 56m2 flat in Clermont-Ferrand, a 44m2 flat in Rouen or a 43m2 one in Grenoble.

Vousfinancier managing dir­ector Jér­ôme Robin, said that in terms of buying power the surface that could be bought in Marseille had risen by 42% since 2010 (an extra 11m2) and by 18% in Lille (+5m2).

Only in Bordeaux, where prices had rocketed, had the purchasing power fallen (-4%).

However, he admitted that what could be bought in Paris (10m2), Bordeaux (26m2) and Lyon (26m2) was “not really enough to live in” but other government initiatives such as the Prêt à taux zéro 0% loan scheme could make a difference for determined buyers.

Opting for a bank offering a part of their loan at 0% would increase the size of flat buyers could buy while staying inside the 33% income envelope.