A non-resident’s borrowing capacity: the haircut on foreign-currency income, debt ratio and residual income
“How much can I borrow?” The answer a non-resident buyer gives themselves is almost always too high, because they calculate like a resident, on gross income at the day’s rate. The bank reads what is left after three successive filters: the haircut, the debt ratio, residual income. This dossier runs through them in order, with a worked example, so that the figure you give a seller is the one the bank will sign.
By Jean Mascla, founder of Home SelectUpdated · 6 min read
First filter: conversion, then the discount
Your income is converted into euros at the rate on the day of the review. Nothing surprising so far. Then the bank applies a discount, meaning it keeps only a fraction of that euro value, to protect itself against a fall in your currency over the whole life of the loan. This discount is an internal practice, not a legal rule: it runs from 10 % for a stable currency such as the Swiss franc to 30 % for a volatile one, and each institution has its own grid.
It is the harshest filter because it is invisible. A salary worth 7,000 euros once converted enters the calculation at only 5,600 euros with a 20 % discount. Everything that follows is calculated on that last figure.
Second filter: the 35 % debt-service ratio
Since 1 January 2022, the decision of the High Council for Financial Stability imposes on banks a maximum debt-service ratio of 35 %, loan insurance included. The rule applies to every borrower, resident or not. The calculation is simple: the sum of all your credit charges may not exceed 35 % of your retained net income.
The word that matters is "all". The total includes: the instalment of the loan requested, its insurance, your existing loans in your country of residence converted into euros, rent if you are a tenant, maintenance you pay. A mortgage on your home in London or Geneva weighs in the calculation exactly as if it were French.
Back to the example. Income retained after discount: 5,600 euros. Charge ceiling: 35 %, so 1,960 euros a month. You already repay 400 euros on a car loan: 1,560 euros a month remain for the new loan, insurance included. If the insurance represents 160 euros, the loan instalment proper is capped at 1,400 euros. That figure, and it alone, is what the loan instalment simulator converts into capital according to the term and the rate of the day.
Third filter: residual income
The debt-service ratio is a regulatory ceiling; residual income is a banking floor. After all credit charges are paid, a sum judged sufficient to live on must remain each month, and that sum depends on the make-up of the household and on the cost of living in the country of residence. A family of four in Singapore or New York is assigned a far higher residual income than a single person in Lisbon.
This is where comfortable income sometimes yields a disappointing capacity: the discount has reduced the income, the ratio has capped the charges, and residual income, calculated on a high cost of living, eats what margin was left.
Chamonix, Alpes & lacs
What moves the result
Three levers act on the final figure, in this order of effectiveness.
Repay existing loans before filing. Every euro of instalment removed frees a euro of capacity, with no discount and no condition.
Increase the down payment. It does not change the ratio, but it reduces the capital to borrow, hence the instalment, hence the pressure on the ceiling. It is also what the bank looks at first in a non-resident.
Have your income read by the right institution. The discount is not the same everywhere: a French subsidiary of a bank from your home country often reads your currency without punishing it. That is precisely what a partner broker knows, and what justifies their fee.
Extending the term is the lever people think of first and the least reliable: the rule allows 25 years, but many institutions cap a non-resident at 20, and all run into the age at the end of the loan.
What this calculation does not say
Borrowing capacity is not a loan approval. It says what the bank can lend, not what it wants to lend. Between the two sit the institution’s appetite for your country of residence, the quality of the security it can take, the insurance it will find for you and, above all, the legibility of your file. Our guide on loan refusals and how to correct them details what brings down a file whose capacity was nonetheless sufficient, and the one on the security for the loan what the bank will take as collateral.
Finally, the result depends on the country where you live far more than on your nationality: that is the subject of our guide to mortgages by country of residence.
What Home Select organises for your borrowing capacity
Financing is prepared before the search. From the first meeting, your Home Select property finder puts you in touch with a broker used to non-residents, so that your offer arrives financed and the bank’s calendar fits within that of the preliminary contract.
Bank, currency, paperwork: we introduce the partners who handle these subjects every week, and we make sure the bank, the notaire and the currency provider receive the same documents. Each acts under their own responsibility; our role is that nothing is missing on the day the money must move.
Frequently asked questions
Is the discount on foreign-currency income a legal rule?
No. The 35 % debt-service ratio and the 25-year term are set by the High Council for Financial Stability; the discount is an internal practice of each bank, ranging from 10 to 30 % depending on the currency and the institution. Two banks can therefore calculate two different capacities on the same file, which is one reason to go through a partner broker who knows the grids.
Do my existing loans abroad count in the debt-service ratio?
Yes, all of them: the mortgage on your home abroad, a car loan, maintenance payments. The bank converts them into euros and adds them to the new loan’s instalment, insurance included, before comparing the total with 35 % of your discounted income. Rent you pay as a tenant is treated the same way.
Can you increase your capacity by extending the term?
Within the 25-year limit, and provided the bank accepts it for a non-resident, which is not a given: many stop at 20 years, and all look at the age at the end of the loan. Extending the term lowers the instalment but raises the total cost and the weight of insurance. The real margin lies rather in the down payment and in repaying existing loans before filing.
What haircut does the bank apply to foreign-currency income?
Your income is converted into euros at the rate on the day of the review. Nothing surprising so far. Then the bank applies a discount, meaning it keeps only a fraction of that euro value, to protect itself against a fall in your currency over the whole life of the loan. This discount is an internal practice, not a legal rule: it runs from 10 % for a stable currency such as the Swiss franc to 30 % for a volatile one, and each institution has its own grid.
How is the 35% debt ratio calculated?
Since 1 January 2022, the decision of the High Council for Financial Stability imposes on banks a maximum debt-service ratio of 35 %, loan insurance included. The rule applies to every borrower, resident or not. The calculation is simple: the sum of all your credit charges may not exceed 35 % of your retained net income.
What is residual income?
The debt-service ratio is a regulatory ceiling; residual income is a banking floor. After all credit charges are paid, a sum judged sufficient to live on must remain each month, and that sum depends on the make-up of the household and on the cost of living in the country of residence. A family of four in Singapore or New York is assigned a far higher residual income than a single person in Lisbon.
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