When it comes to the property purchase, clients need at least part of the purchase price financed by the mortgage in the bank. This is closely connected to the fact that the changes in the bank interest rates are one of the main reasons why the property market has changed. Nowadays, clients are able to afford 20% less of the mortgage sum as it was last year. Times of the easy 8-year salary calculations are gone.
Where is the main problem?
Client’s salary, when applying for a mortgage, must follow two rules:
- DTI (Dept to income) – an indicator of the total indebtedness
This indicator states the limit of the maximal client’s indebtedness including his income with the goal to reduce the increase of the household indebtedness. The limit is also defined according to the debtor’s age. Until 40 years of age, the limit is up to 8-year multiple of the year income. The same conditions are for the clients between 41 till 65 years who will pay out their mortgage until 65 years of age. Those who do not meet these conditions, their limit is decreasing depending of the age1.
- DSTI (Debt service to income ratio) – an indicator of the payout capability
The indicator tries to protect the client’s budget and to create the sufficient income reserve so client is capable to pay out his liabilities, even in the worse conditions. It also follows the extent of the all-client’s payments, which cannot exceed 60% of client’s average salary minus the subsistence minimum. During the calculation also the reserve for the interest increase is taken in account, when 2% is added the approved interest rate.
See the below example:
Client without any liabilities
| Income 1500€ | DTI | DSTI |
|---|---|---|
| Mortgage with interest rate 1% | 144000 | 144000 |
| Mortgage with interest rate 4,5% | 144000 | 123 800 € |
Client’s income is 1500€. Last year he could apply for mortgage up to maximum of 144 000€, today only 123 800 €, which is 14% less in comparison to the last year.
Family with one child without liabilities
| Family with income 2000€ a 1 child | DTI | DSTI |
|---|---|---|
| Mortgage with interest rate 1% | 192000 | 192000 |
| Mortgage with interest rate 4,5% | 192000 | 143300 |
Client’s income is 1500€. Last year he could apply for mortgage up to maximum of 144 000€, today only 123 800 €, which is 14% less in comparison to the last year.
Family with one child without liabilities
| Family with income 2000€ a 1 child | DTI | DSTI |
|---|---|---|
| Mortgage with interest rate 1% | 192000 | 149700 |
| Mortgage with interest rate 4,5% | 192000 | 105 200 |
Family with liabilities have the worst conditions. At the moment, the family is capable to apply for mortgage up to maximum of 105 200€, which is 30% less than in previous year.
Where has the problem with applying for mortgages started? The DSTI parameter. The increasing interest and the increasing payments contribute to the decreasing of disposable income. The clients have to have the mortgage payment up to maximum of 60% of the disposable income, even if the case is that the interest rate is 6,5%.
Our clients’ conditions are checked out before applying for mortgage. In case of property purchase, these information and conditions are required for the buyer before the reservation contract is signed.
Are you planning to purchase a property and you are not sure if you would qualify for the mortgage? Do not hesitate to contact us and we would be happy to help you.
Best regards
Team ProFin Experts. Translated by Barbora Zemko Zuzaniaková
1 zdroj : https://nbs.sk/financna-stabilita/nastroje-fs/dti/
