Why are banks requiring homebuyers to make larger down payments?

According to the Century 21 network, the record for the average down payment was broken in 2023, and banks are tightening lending requirements.

89,345 euros—that is the average down payment reported by the Century 21 network during the second half of 2023 for the purchase of a property valued at 244,090 euros. How can this increasingly large amount be explained?
 

The sharp rise in interest rates over the past two years has made it increasingly difficult for borrowers to obtain a mortgage. However, another factor is also weighing on low-income households and first-time homebuyers: the down payment. In fact, the amount of money prospective homeowners contribute from their savings plays a crucial role in the decision to approve or deny a mortgage. This amount is becoming increasingly important, as data from the Century 21 network reveals.
 

According to Century 21, the average down payment amounted to 89,345 euros during the second half of 2023 for a property valued at 244,090 euros. Thus, this down payment represents 36.6% of the budget required to complete such a project. The Century 21 press release summarizes the current situation by stating that “the down payment continued to rise in 2023, reaching an unprecedented level.” Compared to the first half of 2023, the required down payment increased by 2% over the course of six months.
 

It’s important to remember that a down payment refers to the amount of money contributed by borrowers—which may come, for example, from savings accumulated over the years, a gift, a family inheritance, or the sale of a previous property. Its purpose is twofold: for the bank, it helps reduce risk by ensuring that the borrower makes a significant contribution toward financing the real estate project. As for the borrower, the down payment is intended to minimize the amount borrowed, thereby reducing monthly payments and/or the term of the loan.
 

The steady increase in the down payment requirement is no coincidence. As interest rates have risen from 1% to 4% in two years, borrowers’ borrowing capacity has decreased. With the same income, they can no longer borrow the same amounts from banks. Century 21 adds that “the size of purchased properties can hardly be reduced any further without risking reaching a viability threshold that would make the purchase unfeasible in terms of the occupants’ comfort.”
 

Consequently, one possible adjustment for borrowers is to make a larger down payment. By contributing more of their own funds, prospective homeowners can purchase the house or apartment they need without unduly compromising their purchasing criteria—and without exceeding the debt-to-income limits set by the High Council for Financial Stability.
 

Is it still possible to take out a loan without a down payment?
 

In general, banks require prospective borrowers to provide a down payment of between 10 and 20 percent of the total cost of the real estate transaction. This amount covers project-related expenses such as application fees, guarantee fees, notary fees, etc. However, reaching this down payment threshold can be difficult, especially for low-income households and first-time homebuyers who cannot use part of the proceeds from the sale of a previous property.
 

Century 21 points out that "retirees are faring the best, with their share of homebuyers increasing by 7%." However, while it is still possible to obtain a mortgage without a down payment, it remains difficult. This type of financing, known as a "110% loan," covers not only the purchase price of the property but also the costs associated with the purchase. La Banque Postale offers this option to first-time homebuyers under the age of 36.