4th June 2014
Rate decreases on government bonds and an increasingly bullish buyer’s market in France have pushed mortgage rates down to their lowest levels ever recorded. Average lending rates have now dropped to 2.85% from the previous lows of 2.90% recorded in May 2013 and this movement is only likely to fuel the property market further argue French property and mortgage specialists.
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John Busby at French Private Finance says: “Since the start of the year government bonds have decreased by almost 70 basis points (0.7%) and this has pushed high street lending down even further. These lowest-ever average rates are reflected in the lower margins on variable rates, as banks are being forced to be extra competitive for domestic and non-resident buyers.”
“In real terms for non-resident buyers rates as low as 3.25% fixed for 20 years can now be achieved, which compared to other mortgage rates in Europe is incredible value,” adds Busby. “Even before this latest drop, non-residents were capitalising on the market; in our busiest week across the ski property season we were handling non-resident applications with a total value of over €38m.”
In the six months from Dec ’13 to May ’14 French property specialists Athena Advisors saw an 85% increase on property sales for the same period the previous year, posting sales of French property to non-residents of over €50m.
Nicholas Leach at Athena Advisors says: “It took a while but international buyers are now realising the significance of the current deals available in the French mortgage market. Being able to fix rates for long periods at such low levels means that, unlike in the UK for example, people can easily plan their long term finances for their second home or buy-to-let property. The lure of these new rock bottom rates coupled with the long term security typical of this market, means we’ll see more people releasing idle savings and investing them in French property.”
“The significant factor for the market is that buyers at all levels are utilising the cheap borrowing rates. An increasing number of buyers with budgets over €3m and who can afford to pay cash are still choosing to finance their purchase, often through private French banks.”
Leach says that the situation is helped by the fact that French borrowing rules are arguably easier and easier to understand than the UK following a tightening of the rules here.
He says: “Now the dust has settled, it appears that the UK has become more French, with stricter application rules than in France. French lenders don’t have access to UK credit check systems so a forensic picture of income, assets and outgoings is needed, which many UK buyers regarded as laborious. Now that mortgages in the UK are subject to the same, if not higher levels of scrutiny, French mortgages are even more favourable; the long term rates are better and the application process is easier.”
Busby adds: “France has a clearer system of affordability. You are allowed to spend 33% of your monthly gross income, averages of last 2 years bonus, commissions and dividends are also included on your financial commitments for loans, personal loans, car loans and alimony. Expenses like school fees, insurance payments and entertainment costs are not taken into account. Once this calculation is done you get a definitive amount to spend each month which is nice and clear.”
In France each €100k currently costs approximately €500 per month over 25 years, €600 per month over 20 years and €700 per month over 15 years (which can be the figure used to calculate how much can be borrowed on an interest only basis).
He adds: “In the UK, banks tend to keep their calculations more of a secret and are less clear. Calculators are usually made available to brokers who must shop around to see what can be borrowed with each lender for a specific profile. Buying in France is now so much easier and with super-low rates this appetite will only get bigger.”
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