Will it be more difficult to invest in property in 2020?

How should you invest in property in 2020? You have built up substantial savings and would like to invest in property because your money is sitting in a savings account that no longer earns much interest. But there is a catch… you have heard that borrowing would become more difficult in 2020 because the National Bank has decided to impose a limit on the amount borrowed in relation to the price paid.Trends-Tendances sheds light on the issue by answering six questions.

1. The National Bank wants to require banks to lend less readily. Why?

Today, household debt exceeds 230 billion euros, representing 61% of GDP and standing 3% above the eurozone average. At the same time, many mortgages cover at least 90% of the property’s purchase price. Furthermore, an increasing number of loans are being taken out to purchase what are known as “buy-to-let” properties—in other words, second or third homes. As a result, these investments are contributing to the overvaluation of market prices.
With interest rates so low, it is perfectly understandable to want to invest in bricks and mortar!

6.7% – the proportion of mortgages with a loan-to-value ratio above 100% in 2018.
The NBB would like to bring this back down to 5%.
12.2% – the proportion of “buy-to-let” loans granted in 2018 (7.7% in 2020).

2. What is the current situation for banks in responding to this property-market activity?

The NBB is taking prudent measures and requiring banks to set aside more money to cover potential bad loans. It is also providing them with guidance on which mortgages should or should not be granted.
In doing so, it hopes to prevent a property-market bubble from bursting.

In practical terms:
Prospective owner-occupiers will be able to borrow up to 90% of the purchase value.
For properties intended to be let, investors will have to finance at least 20% of the purchase themselves from the outset.

3. Will it be more difficult to obtain a loan in 2020?

According to Valéry Halloy, French-speaking spokesperson for BNP Paribas Fortis, “Clearly, the NBB’s new measures will lead to stricter lending conditions, meaning that some buy-to-let projects will no longer be eligible for financing. That is the National Bank’s objective.”
It is therefore certain that borrowers will need more of their own funds to obtain a mortgage in 2020. However, this restriction is intended to limit the level of debt and its potentially harmful consequences, not to limit access to home ownership.

4. Will there be an impact on mortgage rates?

The trend in 2019 appears to be towards stabilisation. Rates are already very low, and the measures taken by the NBB are intended to limit the riskiest loans.

5. Can other criteria affect the amount that can be borrowed?

Yes, of course! Examples include credit history, income and repayment capacity.

6. Is this the end of property investment?

Julien Manceaux does not think so! According to him, “Unless new tax measures are introduced, this is certainly not the end of the golden age for owners of multiple properties”. The change, however, lies in the need to pay particular attention to rental yields and no longer rely entirely on the property’s capital appreciation.

You now know how to invest in the property sector in 2020. The winning formula may lie in the past. We therefore invite you to read our 2019 property market review for further information.