Differential method (buy-to-let debt-ratio calculation)
A debt-ratio calculation method in which the bank does not count the buy-to-let loan instalment as a charge or the rent as income, but instead incorporates only the net balance (discounted rent minus instalment): if positive, it is added to income; if negative, it is added to charges. This method is more favourable to multi-property investors but its application varies by bank and HCSF interpretation.
Key points
- Only the net balance (discounted rent minus instalment) is counted, not the gross flows separately.
- A positive balance increases income; a negative balance adds to charges.
- This method is more favourable for multi-property investors than the standard method.
- Its use is at each bank's discretion within HCSF guidelines.
Frequently asked questions
How does the differential method concretely change the calculated debt ratio?
Under the standard method, rental instalments appear in charges and discounted rents in income, effectively double-counting the flows and penalising the debt ratio. Under the differential method, if discounted rents (70% of rents) exceed the instalment, the surplus is added to net income, mechanically reducing the calculated debt ratio and increasing residual borrowing capacity.
Do all banks apply the differential method?
No, it is at each bank's discretion. Some banks apply it systematically for buy-to-let, others only under conditions (property already let, tenant in place, proof of received rents), and others stick to the standard method. This is one reason why the broker contacts several banks for the same buy-to-let file.
Can the differential method be unfavourable in certain cases?
Yes, when the rental cash flow is negative, meaning the instalment exceeds discounted rents. In that case, the negative balance is added as an extra charge, worsening the debt ratio more than the standard method would in some configurations. The broker analyses both methods and directs the client to the bank producing the most favourable result.
In practice
An investor earns €2,000 net and has a primary-residence instalment of €700. They borrow for a rental property with €900 rent and €800 instalment. Standard method: charges = €1,500, income = €1,630 (630 = 900×70%), ratio = 50%. Differential method: balance = 630-800 = -€170, charges = 700+170 = €870, ratio = 43.5%.
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Official sources
- Obtaining a mortgage loan · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr