Withdrawal at source: will the banks change their debt and borrowing capacity calculations?
A few days before the implementation of the withholding tax, Good Finance carried out with PeoplesOpinion a study with the French in order to understand and analyze their perception and their concerns vis-à-vis this new device. Almost three-quarters of French people thus expressed fears linked to its application, with “errors in the amount withdrawn” in mind. Concerns which also concern future property buyers who are almost 55% who fear difficulties in taking out or repaying their credit. Will the implementation of the withholding tax change the debt and borrowing capacity calculations?? explanations
Nearly three quarters of French people fear the negative effects of the withholding tax
According to an PeoplesOpinion survey for Good Finance *, 72% of French people express at least one fear linked to the PAS, with errors in the amount taken in mind (for 34% of French people). Also feared is a decline in purchasing power (24% of responses), the feeling of earning less money (19%), the difficulty of managing one’s finances (16%) and the feeling of paying more taxes ( 14%).
These concerns are even stronger among low-income households, which are 37% who fear payment errors and 31% a decrease in their purchasing power. In the end, only 26% of those questioned said that they did not feel any fear related to the implementation of the withholding tax.
“The concerns expressed are natural but they may not last. The French will need a little time to get used to this new management of their finances. But after a few months, if the system is effective and the number of errors is limited, these concerns could quickly dissipate, which would limit the real negative impact of the implementation of the withholding tax ”analyzes Franny Mich, director of Opinion research at PeoplesOpinion.
Good news, however: if 34% of French people plan to make substantial purchases in 2019 (car, real estate or other), for two thirds of them, the introduction of withholding tax will not change the schedule set for realize them. Almost a third could still postpone these purchases, the time to understand this new management of their finances.
Withholding tax worries more than 1 in 2 future home buyers
More specifically, 15% of French people declare having a real estate project within two years with significant differences by age: this proportion rises to 24% among people aged 25 to 34 against 9% among those 50 and over.
Among those who plan to buy a property within two years, more than 1 in 2, or 55%, fear that they will find it more difficult to meet their financial charges, in particular the payment of monthly payments, following the implementation of the withholding tax. 55% also fear that the bank will grant them an amount lower than what they could have had before the implementation of the device.
If these figures remain moderate, they are more worrying for the category of under 35s – first-time buyers therefore – who are 75% who fear difficulties in meeting their financial burdens and 72% who fear that their ability to ‘borrowing. Similarly, among those with modest incomes, these figures rise to 70 and 69% enough to discourage them from making a real estate purchase.
“Even if 60% of French people who pay income tax are paid monthly, this study shows that French people are afraid of borrowing a smaller amount or making it harder to make ends meet, even if in fact the direct debit the source will not change anything. As the real estate market is often impacted by psychological effects, we can nonetheless anticipate a wait-and-see attitude for buyers in the 1 st quarter, in particular the youngest or most fragile buyers who are those who feel the most impacted … ”Analyzes Alex Bouler, spokesperson for Good Finance.
Yet the banks say that the withholding tax will not change anything…
According to the banking partners we interviewed, the implementation of the withholding tax should not change the calculations of debt and borrowing capacity. The banks will take into account the “net payable before income tax” which remains entered on the pay slips in addition to the new “net payable after tax deduction”.
The amount of tax deducted from the salary will of course be taken into account in the overall study of the file and the assessment of the risk via the calculation of the “living-to-live” which is the remaining sum all expenses deducted (loan monthly payment, other loans in progress, various charges, alimony, taxes) and the minimum amount of which varies according to the banks with an average of $ 750 for a single person, $ 1,200 for a couple and $ 250 per dependent child .
Some banks are still an exception: they already take into account the taxes by deducting them from the net salary but with the possibility of going up to 40 or 50% debt ratio (against 33% on average).
* study carried out by online self-administered questionnaire from 7 to 15 November 2018 by PeoplesOpinion with a sample of 1,064 people, representative of the French population, aged 18 and over (quota method).