Buy-to-let investment
Rental income: how the bank calculates your debt-to-income ratio as an investor
Weighting of rents, classical or differential method, disposable income: why two banks calculate an investor's capacity differently.
The bank most often integrates the rent after a deduction, which is a matter of practice for each institution and not a rule of law. Two formulas then coexist: the classical method adds the weighted rent to the income and the instalment to the expenses; the differential method retains only the balance of the transaction. On the same file, they do not yield the same debt-to-income ratio.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- Most banks apply a deduction to the rent, while some retain it in full: this is institutional practice, not a rule of law.
- The classical method adds the weighted rent and the instalment to the existing amounts; the differential method isolates the transaction and retains only its balance.
- On a transaction that is exactly self-financed, the classical method increases the debt-to-income ratio, whereas the differential method leaves it unchanged.
- Disposable income is an amount, not a ratio: it decreases with each new transaction, even when the debt-to-income ratio remains unchanged.
- A projected rent is only valid insofar as it is supported by documents: a comparable lease, an agency certificate or a local schedule, never the seller's property listing.
The same file, the same property: one bank tells you that you are at the limit, while the other finances an additional transaction. These are two different formulas. Choose the one that serves your rental project.
Prices, rents and local yields: financing a rental investment in Lyon.
How is a rent included in the bank's calculation?
Most often after a deduction: the gross rent first covers the property tax, service charges, maintenance and vacancy. Some banks retain it in full.
A weighting specific to each bank
The only enforceable rule is the maximum debt-to-income ratio set by the decision of the High Council of Financial Stability.
Le coût de l'assurance emprunteur entre dans l'assiette par renvoi à la notion de coût total du crédit, et non par une mention expresse du texte.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
This ceiling sets a ratio, not the method for calculating a rent. The same text governs the duration.
La maturité est la somme de la période de différé et de la période d'amortissement, et non l'amortissement seul.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
The weighting is a risk policy. It varies from one bank to another and over time. Do not contest it: provide the details of your actual expenses.
Two calculation methods, two debt-to-income ratios for the same file
The classic method adds the weighted rent to the income and the instalment to the expenses. The differential method only retains the difference between the two.
| Symbol | What it designates |
|---|---|
| R | Your net activity income retained by the bank |
| L | The gross rent of the financed property |
| p | The weighting coefficient applied by the institution |
| m | The instalment of the rental loan, including insurance |
| C | Your other credit expenses, including the main residence |
- Classic, the most widespread: ratio = (C + m) ÷ (R + p × L).
- Differential, if the weighted rent covers the instalment: ratio = C ÷ (R + p × L − m); if it does not cover it: ratio = (C + m − p × L) ÷ R.
A self-financed transaction: two outcomes
If p × L = m, the differential method leaves the ratio at C ÷ R: the borrowing capacity has not changed. The conventional method yields (C + m) ÷ (R + m): the ratio rises, invariably.
| Transaction situation | Conventional method | Differential method |
|---|---|---|
| Weighted rent equal to the instalment | The debt-to-income ratio rises, even though the transaction is neutral | The debt-to-income ratio remains unchanged; the borrowing capacity is intact |
| Weighted rent higher than the instalment | The ratio still rises, but more slowly, provided the surplus remains of realistic magnitude | The ratio falls: the surplus is treated as income |
| Weighted rent lower than the instalment | The ratio rises sharply | The ratio also rises: the shortfall is deducted as an expense |
Under the conventional method, each balanced transaction brings the ratio closer to the ceiling: the number of transactions is finite. Exemptions from the ceiling are rationed; do not rely on them: see The wall of the fourth property.
An instalment is never presented as a rent: whether self-financed or not, it is you who owe it.
Choose the bank whose method suits you
There is no public list: the grids are internal. The differential method is encountered mainly at banks serving private wealth and professional clients.
The method is not negotiable, the institution is. Before touching the price, the term or the down payment, knock on the right door.
Have the rent of a property not yet let counted
A projected rent is valid by its supporting documents: agency certificate, signed management mandate, comparable lease in the building.
- Rent announced by the seller: ask on what it is based.
- Property subject to a cap: the bank retains the cap.
- Property to renovate: no rent before handover, to be included in the plan. See financing a property classified F or G.
A file that holds with a low projection no longer depends on an assumption.
Furnished property under the industrial and commercial profits regime: the trap of a nil result
With depreciation, the taxable profit can remain close to zero while the rents are being received. Attach a reconciliation table between the rents received and the declared profit. See Net taxable, net payable, gross: which income does the bank actually retain? and why two banks respond differently. The tax regime is chosen with a chartered accountant, before the purchase.
Multiple properties: the analyst reads your exposure
Concentration with a lender, correlated properties, two simultaneous vacancies: see The wall of the 4th property.
The disposable income, the second lock for investors
What remains each month, after the loans have been paid. Each bank sets its threshold: a file may meet the debt-to-income ratio and yet be refused on this basis.
The debt-to-income ratio is a ratio, the disposable income an amount. Each operation reduces it, even when the ratio does not move. An agreement in principle turned into a refusal? Often look there.
Seven documents to ensure the maximum of your rents is retained
- Signed leases and proof of receipt.
- The council tax notice for each property.
- The latest service charge statement, itemised.
- The rental income tax returns, with the reconciliation table.
- The amortisation schedule for each loan in progress, insurance included.
- A single forecast, consistent with the documents.
- A summary at the head of the file: see The wall of the 4th property.
Your starting point: C ÷ R, excluding rents. Add the cost of the new loan with the formula for the instalment.
Several loans in progress? Create your file or compare the two formulas on your figures.
Sources
Read next
- How much can I borrow? Mortgage capacity in Lyon
- Financing a rental investment in Lyon: what the bank actually looks at Financing a rental investment in Lyon: the rent the bank takes into account, the expected down payment, the mode of operation and the structure that holds up.
- Rent control in Lyon and Villeurbanne: the rent the lender will take into account Rent control in Lyon and Villeurbanne: where it applies, how to read the capped reference rent, and the rent the lender will take into account.
- Investing in rental property before your main residence: the right order in Lyon Rental first, main residence later? You stay a first-time buyer, but this first purchase affects your debt-to-income ratio, down payment and zero-interest loan.
- Net take-home, net payable, gross: which income does the bank actually use? Net payable, gross, taxable, bonuses, dividends, rents: what the bank actually uses to calculate your borrowing capacity, before you start house-hunting.
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