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• January 2012

  What next for French mortgage rates as France loses AAA status?

  It's the old story of a country losing its AAA status leading to ordinary punters having to pay more for their mortgages. However, the recent downgrade is not the only reason for the increases to the cost of borrowing in France. The margins banks are charging each other are also increasing as banks seek to rebuild balance sheets after losses in Greece and the economic slowdown. These increases are now being passed on to the public. The net effect is a lack of appetite for lending and borrowing in France with each application being carefully studied and selected by both banks and consumers. Bank margins over the applicable reference index have now increased by 20 basis points with the average now over 2% with many capped rates over 3% and fixed rates still looking good with margins under 2%.

  French variable rate mortgages have the lowest margins of all French loans, though we are also seeing sharp increases here, even as the Euribor is decreasing. The 3 month Euribor rate has fallen 20 basis points over the last month and now stands at 1.13% just above the ECB base rate of 1%. The extra money which the ECB has put into the system has delivered the required liquidity to keep the banks lending and has also brought Euribor rates tumbling down. Further cuts to the base rate are not being priced in at the moment so we should be set for a period of stability as we await the results of the latest round of high level European talks. Needless to say base rate hikes are not on the cards either though we may see further increase to bank margins for variable rate loans which are currently in the region of 1.50% to 2%.

  With fixed rate mortgages, the idea is that French banks have to pay marginally more than the government does for their borrowing so all increases in the cost of borrowing for the government are generally passed straight on to the banks. We can see these increases via the TEC10 index which gives a strong indication of 10 year French government debt and commercial bank wholesale rates before adding a margin for anyone seeking fixed rate funding from banks. October and November saw the TEC10 put on 1.50% from historically low levels of 2.50% to above 4% as the fallout from Greece continued. Since mid-November the index has fallen back to almost 3%, with a peak rate in January of 3.40% coming before the downgrading by Standard and Poors of French government debt. The upward pressure on the TEC10 will come from either the likelihood of economic improvements and ECB rate rises or worsening of the French reputation with the rating agencies both of which seem unlikely at this stage. Good 25 year fixed rates are available from 4.60% at 80% loan to value.

  In terms of our view of the market, we are seeing an increase of activity and enquiries after an exceptionally quiet last quarter of 2011. We are seeing lots of activity at both the high and low ends of the market with the middle range purchase price seeing the largest decrease in terms of numbers of purchases going ahead. The market for French property seems to be picking up again with many of our partners also starting the year well. We see the outlook for French mortgage rates to be fairly stable with some upward pressure over the next six months.

  Best wishes for the New Year.

• November 2011

  Reasons to be cheerful

  So as another year draws to a close in the heady world of French mortgages, it is always useful to look back and reflect on what the year has brought us. This time last year, we were experiencing some of the lowest ever fixed rates seen in France with the record set around 3.35% fixed for 20 years. Not bad if you can get it. As inflation began to unsettle the then head of the European Central Bank Jean-Claude Trichet, we saw increases in the main ECB rate from 1% back up to 1.50%. These increases put the brakes on the mini boom in French property prices which saw Paris experiencing off the chart price rises, whilst France as a whole was ticking over at a respectable 6% average for the year.

  The eventual unraveling of a policy of lack of effective decision making by the top ministers of Europe, led to the markets seizing on Sovereign and AAA debt and pushing the cost of refinancing that debt higher across the board, even the Germans pay more…The unease brought about by the sheer scale of exposure to the debts of the less fiscally responsible nations has led to increase in the mortgage rates for new customers across the board despite the recent decrease in the main refinancing rate by the ECB to 1.25% with further cuts predicted.

  These cuts are not being passed on the form of cheaper variable and capped rate loans for new customers as banks maintain or increase their margins in readiness for impending new Basle III capital base ratios and to pay for the increased costs of wholesale borrowing. Competitive rates are still available for a number of local banks in France with a 20 year fixed rate possible at 4.25%. Now that's less than 1% of the all time lowest rate, there now, that should cheer everyone up!

  Happy Christmas/Festive Season from all of us here at French Private Finance.

• October 2011

  Lack of liquidity driving up French mortgage rates but transaction numbers still increasing on confidence upswing

  After an extremely quiet September, traffic and enquiries are up by more than 40% in October, with many international buyers signing agreements to purchase in France for the ski season despite the continuing Euroland saga. Wednesday's announcement of a solid plan to alleviate the Eurozone sovereign debt crisis should boost confidence in the markets by making clear that the political will is there to support the Euro – as predicted by George Soros. Overall confidence has been buoyed, with many seeing the French property market as a safe haven for investment funds

  French mortgage product rates were stable during October although two banks are now set to increase rates and margins by 0.35%, attributed to an increase in the 'cost of funds' on the markets with others keeping rates stable for now.

  This increase in the 'cost of funds' is an amount which is added to the index or rate at which French banks are borrowing and is a kind of risk and liquidity cost margin. This increase does not appear in any of the indices such as the 3 month Euribor, against which the majority of variable and capped rate mortgages are pegged. The reasons for the increased costs are the new banking rules on increasing the capital base for lenders. These rules have reduced the ability of banks to lend and the uncertainty of bank debts which may have to be written off due to the situations in Greece and the wider economy. This increased cost associated with liquidity has prevented long term interest rates from falling to extremely low levels again, as they did in September last year. We recently saw the TEC 10 index, which gives an indication of 10 year government bond yields and long term fixed rate mortgages, fall to its lowest ever level of 2.45% on 12 September, the previous low taking place 12 months earlier.

  We may be set for a decrease in the ECB rate before the end of the year. The question is whether this will be passed on in the form of lower rates or simply absorbed into the 'cost funds'. If the liquidity problems persist, those who manage to obtain a mortgage facility will be pleased they have one, if the cost of liquidity continues to increase.

• September 2011

  French bank closes to non-residents, as mortgage rates set to fall further

  September saw more attention than usual on the French banks as the media spotlight turned on those banks holding large quantities of Greek debt. Of the main banks under scrutiny, Crédit Agricole, has the most exposure with approximately €21 Billion in local exposure, whilst Société Générale has approximately €6 billion in local exposure and government bonds leading to a Moody's rating cut; from Aa1 to Aa2 and Aa2 to Aa3 respectively. In reaction to the market conditions many French banks have been restructuring and looking to reduce risk across their portfolio of businesses, as was previously discussed in this column in relation to French banks changing their lending criteria. A significant development in the international investment mortgage market is the news that LCL, a subsidiary of Crédit Agricole, is to close its doors by the end of the year. This follows on from Société Générale closing its international branch in March 2011.

  On a slightly brighter note, it seems that interest rates could be set to fall further with the European Central Bank expected to cut rates by up to 0.50% to a low of 0.75% at their next meeting in October. With long term interest rates hovering around their historic low at 2.50% on the TEC 10, the government 10 year bond price, we can anticipate long term borrowing rates to also fall further within two months.

  What this means is that, similar to this time last year, the buying conditions for French property are some of the best ever seen. With the opportunity to lock in a long term rate for up to 25 years on either a fixed or capped basis, investors and house hunters can secure an asset to hedge against rising inflation safe in the knowledge that maximum monthly mortgage costs are manageable.

  French banks are still cautious about who they lend money to in the current climate, and to increase the probability of securing finance a deposit of 20-30% is recommended, although it is still possible to borrow 100% of the purchase price of the property through certain French lenders. To be considered for this level of finance borrowers would need to place between 10-20% of the purchase price of the property under the control of the bank.This investment can be kept in the currency of your choice and the target return on the money is 3-4%.

• August 2011

  Introducing French Private Finance by Athena Mortgages

  From opening French bank accounts to French insurance products and other financial services, French Private Finance is a one stop shop for non French residents looking to locate tried and tested services and to follow best practice when buying in France.

  This new service will continue to provide access to mortgages from over 50 French banks and dozens of international finance providers, to ensure you have the widest choice of lenders for your particular circumstances.

  Each of our mortgage quotations displays two offers side-by-side providing easy comparison of competing mortgage products. Your consultant will help you to narrow down the 1200 available products to the few that best match your financial goals using their daily experience of this ever evolving market place.

  Over the last six years of focusing entirely on finance in France - we have built many relationships within the French financial services sector. Our specialist team of brokers and underwriters will use all of their experience and relationships to put together the best package of services for you. As ever, it is extremely important to seek out the best advice possible when undertaking a purchase overseas, even more so in today's financial climate where the success of a transaction can hinge on the smallest of details.

  At French Private Finance we offer access to a panel of experts who can ensure your transaction is structured to optimise the chances of success and to maximise financial efficiency in the long term.

  You can now find our new website at www.frenchprivatefinance.com which offers a comprehensive range of services to UK and international buyers of French property.

• July 2011

  Good summer buying conditions in France

  News from across the Channel is that we are experiencing good market conditions for buying French property. For the next few months at least, the outlook for rates is stable, with a chance of slightly lower fixed rates in August and September. Whilst some commentators have suggested we are seeing a bubble beginning to form concerningFrench property prices, due to the extended period of low rates, we are nowhere near the levels of price rises seen between 2002-2005 with Jean-Philippe Cotis, of the French National Institute for Statistics, not seeing any "imbalances". The relatively small increases in both house prices and interest rates already seem to have put the brakes on the numbers of transactions in the French property market, which remain at 2007 levels with more sellers than buyers.

  The Federation of French Estate Agents predicts the increase for this year to maintain the same levels seen in2010 at an average 3%-6% across France. This is largely based on interest rates which are still extremely attractive (examples below). Compared with average prices for the 2nd quarter last year, house prices are up 5% and apartments up 8.6% making an overall increase of 6.8%. Comparing July 2010 to June 2011 we find the overall increase to be +3.8% versus +1.5% in 2010 and -4.90% in 2009. These increases have brought average French house prices back in line with levels last seen in 2007 when interest rates were 1% higher on average.

  Better news is also to be had on the competition amongst French banks for clients. After an initial retrenchment by the banks – in terms of strengthening of criteria due to the market contexts of an increase in regulation, the number of defaults and the cost of liquidity – there now seems to be a slight overall increase again in the levels of loan to value on offer. In addition, bank committees have also softened their approach further, with more applications succeeding first time around.

• June 2011

  Good news first...

  The good news this month is that it seems French President Nicolas Sarkozy has decided against setting a new tax on second homes in France. Reports suggest that he has had a change of heart after strong objections from the real estate community and question marks over the legality of such a move. Still, I expect he will gain some political points for proposing it and a few Gallic shrugs for dropping it, so overall he is probably up. This news will be a boon to many existing owners in France who do not make their properties available to rent, as well as to those prospective buyers.

  Now for the bad news. The rate rise is coming on July 7 when the European Central Bank is expected to increase the main index rate from 1.25% to 1.50% in spite of all the problems in Greece. French banks have been among the most affected with Credit Agricole, BNP and Soc Gen - apparently holding the most private Greek debt - now under scrutiny. Not surprisingly these banks have already made moves to reduce their mortgage lending to overseas investors with Credit Agricole and BNP withdrawing 100% finance for leasebacks and Soc Gen having already closed its international platform. This trend for tightening criteria is continuing with the withdrawal of a three-year interest only product by the Caisse d´Epargne.

  The recent rate increases and tightening of banking criteria were always going to come after French interest rates reach historic lows last September. However, French finance is still available at 100% LTV for both classic purchases and investment property at rates which every British homeowner would opt for in a flash. At 100% LTV you have 4.35% capped at 5.35% for the entire 20 year duration or alternatively you can fix at 4.35% for 25 years at 80%. When you compare with the comparable UK 5 year fixed rates your eyes water as a UK home owner. The peace of mind and security offered by these sorts of mortgage products really are areas where the UK has something to learn.

• May 2011

  French banks tightening lending criteria

  This month has seen a dip in the desire of French banks to lend to international investors. It is rumoured that some leading banks have already reached their targets for residential lending for the year already, indicating a lack of liquidity and increase in risk aversion. This is also seems to be behind a reduction in the available durations for interest only mortgages and an increase in the net assets required for a pure interest only loan from 120% of net assets to 150%. If we widen the picture we can see that at least two other banks have closed their international branches, Societe Generale and UCB, compounding the trend for an overall increase in the reluctance to lend to international investors. Several banks have reduced the amounts they are willing to lend to borrowers from outside Europe, whilst one major lender has restricted their products to EU citizens only.

  Another area that French banks appear to be tightening up on is affordability and the ratio of lending to gross income. Traditionally French lenders will only allow a maximum of 33% of the gross income of the borrower to be set aside for loans such as mortgages. However, lenders have started to change the goal-posts, refusing borrowers who they feel do not have sufficient funds to live on even though they meet the 33% gross income requirement.

  In addition, French banks have started adopting Basle III criteria, a new global regulatory standard on bank capital adequacy and liquidity, which stipulates that total outstanding loans should be no more than six times the borrower’s income. Serial investors with large buy-to-let portfolios and first time buyers, in particular, are the most vulnerable to the changes, as lenders appetite for risk recedes.

  Rates have been flat over the past month with only a small increase to the Euribor and small drom in the Tec 10 for long term rates. We expact rates to remain flatish for the next month or so.

• Avril 2011

  How is the ECB rate rise affecting the French mortgage market?

  True to form, the European Central Bank raised the main interest rate to 1.25% from 1% after two years without change – ECB president Jean-Claude Trichet forewarning us with the code words "strong vigilance" in the report of their monthly meeting. The ostensible reason for the increase in the base rate is to ward off inflation which stood at 2.70% on the day of the announcement. As in many countries around the world, the target for the Central Bank is a 2% inflation rate, which the ECB felt was too high to avoid acting on despite the debt related financial problems besetting many of the Eurozone members. It should not be forgotten that given the ECB's position of presiding over monetary policy of a diverse set of economies, it must be seen to act with authority, conviction and clarity.

  We have not seen much change in the rates on offer for mortgages in France since the announcement of the increase. Markets and banks had in fact already priced in this increase – the wily foxes. We have seen an average increase of about 0.20% in the cost of variable rate mortgages, with some banks opting to further increase their margins. Fixed rates have seen smaller increases but remain on the upward trend as concerns over the viability of some Eurozone economies have an effect on longer term bonds and interest rates.

  We should expect further increases to the lowest rates on offer and a flatter market overall as it becomes more expensive for banks to refinance and maintain market beating rates. Although the ECB has indicated this rise in interest rates does not necessarily denote a series of increases, we can be sure that if inflation doesn't recede over the next quarter, Jean Claude may start to feel strongly vigilant again.

• March 2011:

  Markets anticipate ECB rate rise in April

  The European Central Bank (ECB) maintained its main refinancing rate at 1% last month despite indications that French inflation will be hitting 2.40% in 2011. The main base rate has been at this level since May 2009 and there is now increasing pressure on the ever-willing-to-be-hawkish ECB to raise rates. Initially inflation was forecast to be 1.8% this year and 1.5% in 2012. However, new ECB forecasts now predict an inflation rate of 2.40% for 2011, dropping back to 1.70% in 2012. The ECB has now used the words "strong vigilance" to describe their stance, which is generally seen as code for an interest rate rise the following month.

  Generally, the philosophy of the ECB is to be extremely clear in its communication, with a potential rate rise in April openly discussed, leading the markets to react. Those with variable rate mortgages in France can relax a bit as, according to the ECB President Jean-Claude Trichet, any rate rise in April would certainly not mean the start of a series of hikes. Merely talking about the rate rise has already added approximately 0.15% onto the 3 month Euribor, the index which is use to price the majority of French variable rate mortgages, and which now stands at 1.20%. This increase will be directly impacting thousands of people's mortgage payments and the currency exchange rate, which has its own dampening effect on the economy and the property market. A French property network in France has reported a 3% drop in the number of sales for the past year, with a 13% fall in the number of sales in Paris where prices per square metre have reached an historic level. Whilst prices are falling in many areas of France, most notably -7% in Alsace -6% in Aquitaine, -6,% in the Midi-Pyrénées, Basse-Normandie and -5.5% in Brittany, there are still many stable areas with the overall market up 2.70% for the first quarter of the year.

  So will they or won't they? The markets are pricing it in, but I personally think the ECB might not raise rates next month.Theeffectson the market of merely talking about a rate risecould be enough for now and the recovery is still fragile in many parts of Europe. See you next month to see ifmy prediction is correct.

• February 2011:

  French interest rates still rising

  Over the last month banks have seen increases of 0.40% in the OAT, one of the main indices in France, which has led to further increases in the cost of fixed rate and capped rate mortgages. The French OAT index, which is based on the total obligations of the French treasury for bond issues over different durations, forms the basis for much of the long term lending at either capped or fixed rates of interest. This rise has been fully passed on to borrowers by the majority of banks now with some going further and increasing rates over and above this rise. Many banks have also taken this opportunity to slightly increase margins and initial rates on variable products even though the 3 month Euribor has been stable for the last month at just over 1%.

  It still remains unclear as to the exact timing of further increases to the ECB base rate which continues to remain steady at 1%, though we may continue to see increases to fixed rates if the expectation of further inflation and rate rises from the ECB become apparent for the medium term. Should the spectre of a double dip recession raise its head again or if a continuous stream of unhelpful economic events casts doubts on the recovery, we may see long term interest rates begin to fall again. On the other hand if we continue to see a lack of liquidity in the market coupled with concerns over risk profiles and inflation we may find that rates will continue to rise.

  In effect it is increasingly difficult to judge which direction interest rates will move in the short term unless you have a crystal ball as there are now so many factors at play. For this reason, we recommend that our clients still consider our capped and fixed rates. In spite of any recent rises, these product types offer long term peace of mind which has a premium all of its own.

• January 2011:

  French mortgage interest rate rises point to returning growth

  Just a few short months ago in September 2010, French interest rates hit historic lows not seen in over 50 years. Fast forward to today and the situation has altered with the trend now for higher rates. We have seen strong rises in the 3-month Euribor recently, which has added almost half a percent in the past six months or so. Variable rates now start from 2.80% for a 25-year variable mortgage at 80% loan-to-value. Fixed rates have also increased by almost twice that amount and could be set to rise further. Mortgages for 80% of the purchase price can be found for 4.25% fixed for the entire 25-year duration of the loan. Great value can be found for 100% mortgages with a 30-year mortgage, which starts at 3.80% and cannot increase past 4.80% for the life of the mortgage. While it is unclear whether the European Central Bank will raise rates, there is increasing confidence in the return of growth and inflation in the medium-term which is pushing up the price of long-term bonds and fixed interest rates.

  The recent rises probably show a return to more sensible interest rates and, although the trend is upwards, it remains to be seen how the austerity measures across Europe will bite, hindering inflation and growth. The UK outlook is for low growth as our housing market is still unaffordable for many, compounded by a lack of lending from the UK banks. The recent contraction in the economic growth "due to snow" shows just how fragile the recovery is. In Europe, the increasing deficit problems and lack of investor confidence in Portugal, Greece, Ireland and Spain has been a worry for many. The ECB and China have been buying bonds from these countries and managing well to reduce the amount of money the 'PIGS' have to pay to borrow on the international market for their spending plans. For the time being, mortgages are still available at 90% and 100% in France, a boon to many British buyers looking to take advantage of rising French property prices.

• November 2010

  Outlook good for 2011

  The Euribor 3 month, which is the index used to price billions of Euros of variable interest rate non-resident mortgages, has risen 30% in the last 6 months and now stands at 1.030%, just above and in the normal pre-crisis range of the benchmark European Central bank rate of 1%.

  The Tec 10 index, which is used to price the majority of French fixed rate loans, has risen 20% to 3.12% since the end of August, perhaps heralding the beginning of the end of these historically low interest rates.

  The general outlook for rates on French mortgages looks good for 2011 especially in Q1. You can still get a 25-year fixed rate at 3.8% or 3.5% over 15 years at 80% of the purchase price, which in UK terms is still phenomenal. Tracker mortgages on the 3 month Euribor for an 80% mortgage start at 2.35% on a 25-year term. At 100% LTV you can get a rate of 3.10% which can never increase past 5.10% over a 25-year period.

  However you look at it, the opportunity – given the current set buying conditions in France for UK purchasers – cannot be underestimated.

• October 2010:

  French rates at lowest level since WWII

  October saw average French rates fall to their lowest level since the Second World War. The average rate now stands at 3.30%, down from 3.40% the previous month. One of the reasons rates are now so low is that the interest rate on long term government debt is at its lowest level for 200 years. As the French market has fixed rates for the term of the mortgage as well as a wide range of capped products, you can limit your exposure to future rate rises and lock in long term value. Quite simply, the cost of borrowing money in France has never been this cheap or secure for such a large number of people before. The euro may be strong now, but the fact that you can access near 100% funding means that it does not matter what the exchange rate is. The long term value of low rates, combined with low property prices, far outweighs any currency considerations. You can always buy Euros when the timing is right and your home currency is strong against the Euro.You can't always buy property near the bottom of the market with historically ultra low interest rates. We have been warned that some banks will start raising their fixed rates in early November by up to 0.2% so now is the time to try to secure an ultra low rate.

  To see the graphs on this topic, please view a presentation here.

• September 2010:

  September saw fixed rate mortgages fall to their lowest ever level, as predicted in last month's French mortgage watch. The TEC 10 fell to 2.54% on the first of September and rose from there through the month to 2.85% dropping back to 2.66% by the end of the month. We are not currently seeing rises in the rates but October may bring small increases to some lenders fixed rates. There is still some regional variation in the fixed rate mortgage market with banks in Bordeaux, Limousin, Poitou, Charentes and the Midi Pyrenees all offering lower rates than for other regions.

  On the variable side of things, there still seems no sign of a hike in the base rate which would bring changes to the 3 month Euribor rate against which the majority of variable lending is pegged. The 3 month Euribor is up to 0.88% from .65% in May largely due to the perceived increase in risk by banks lending to each other. If you are thinking of buying in Alps and have a 20% deposit, you could go for a variable mortgage based on the CHF Swiss Libor rates which would bring you in a variable rate of just 0.80% including the bank margin!

• August 2010

  Why is the TEC10 so low?

  If tracker mortgages were the flavour of last month then fixed rates will be all the rage in September. Rates for fixed rate French mortgages have fallen significantly in the past year but the recent dramatic drop in the TEC 10 index (explained below) indicates that we should have the lowest fixed rates ever to be offered in France next month. The last time average fixed rates in France were below 3.50% was back in Q4 2005 when the TEC 10 was above 3%. With the TEC 10 now as low as 2.60%, a fall of around 40% in August alone, this could herald fixed rates at levels unseen in decades.

  In an environment where French property prices are now stable but with sellers likely to be tempted by fair offers, now really does seem like a unique opportunity to buy a French property, especially with the security that a fixed rate mortgage brings.

  The TEC10 is an index used by French banks to set their fixed rates. It is the daily long-term Government bond index, corresponding to the yield-to-maturity of a fictitious 10-year Treasury note. Banks borrow money from the markets based on this index and then provide loans to the borrowers plus the appropriate margin. The TEC 10 rate currently stands at 2.60% which is a historic low. So, what has caused the TEC 10 to fall this low?

  The first reason is the outlook for inflation. The markets are predicting sluggish growth over the next five years and perhaps beyond. This means that when the markets look at the price of a 10-year bond, they can set the rates lower if the outlook for inflation is lower. Conversely, in a bull market with high levels of inflation, the rate will have to be higher because otherwise the net yield, once you deduct inflation, would be extremely low and nobody would buy the bonds - consequently the price has to rise.

  Which brings us to the second reason. Many investors are seeking safe havens for their money, which means things like 10 year government bonds, corporate bonds from banks, institutional bonds which are all based on the TEC10. As we all know, with supply and demand, when there is a lot of something, the price becomes cheap-and there are a lot of people wanting to buy bonds and the aim of the game is to sell them as cheaply as possible

• July 2010

  Increased diligence and delays

  Data out this month suggests that the excellent French property buying conditions will continue well into 2011 and perhaps the next increases in rates will only come in 2014. Tracker mortgages now seem to be the flavour of the month after comments by the ITEM club (Independent Treasury Economic Model) and Jean Claude Trichet, the president of the European central bank, have led to analysts predicting that rate rises seem a way off yet.
  
  Lending for house purchases as a whole was up 3.4% across the Eurozone in June with France doing particularly well according to European Central bank data. The latest report from the FNAIM for June also confirms this for France as French property prices continue to remain stable with an increase of 0.6% in the last 3 months. French banks continue to lend at high levels of loan to value, up to 100% of the purchase price for a second home with some banks also including the purchase taxes in the loan for some property types.

  French banks are keen to make the most of the historic interest rates, 1.75% for a 90% LTV tracker is the best we have seen for a second home purchase, but they are also cautious given the unusual economic conditions. What does this mean for your French mortgage application? Increased amounts of explanation required by the French bank and extra paper work required making for a longer application process. The high volume of clients now being scrutinised to a new level means that many banks are struggling to maintain their service levels. Add in the summer vacation season and we have a recipe for frustration, especially for those seeking a loan quickly.

  If you are in a hurry to obtain a loan then make sure you gather all of the documentation together quickly and accurately and perhaps write a summary letter outlining your financial situation and how you manage your bank accounts. This will help your broker to quickly get up t speed with the best offers, perhaps running your situation passed a few banks to see which ones can make an offer in the shortest time. Mortgage offers can still be obtained quickly but extra diligence is required pre application to ensure that the application can go through smoothly. A good French mortgage broker is vital to getting the application quickly through the new checks.

• June 2010

  French Mortgage market trends: Banks tightening policy

  The market for French mortgages is in good health as we pass the half way mark for the year. Most currencies have strengthened against the Euro meaning it is cheaper to make deposits on properties and the net cost of mortgage payments is also less. The pound is at a 19 month high against the Euro, in case you hadn't noticed… The horizon for rate increases still seems a way off and mortgage rates remain at their historic lows. So for the meantime the buying conditions in France are improving overall.

  On the flip side, this month we have noticed a tightening of bank policy towards accepting clients for French mortgages and some leaseback companies. Attitudes amongst many of the banks have now changed at there is more caution in the air. Now more than ever it is important to check your situation out with us before moving ahead to ascertain that there is margin in your application to ensure your loan is approved.

  As we all know the past 18 months have been uncertain times in which the economy has slowed considerably. This has meant a reduction in gross profit for many self-employed borrower of the period 08/09. The reduction when taken in context with other years of business may seem reasonable given the economic context. However, we have seen several borderline applications refused due to "significant reduction in net revenues" over the past month. This indicates a returning level of conservatism on the part of the French banks which saw it almost impossible for self-employed borrowers to find loans in France in the mid-nineties. For salaried borrowers, revenue will have remained constant over the period but borderline cases are harder now to pass through the bank's lending committee.

  It is definitely recommended for self-employed borrowers to run their applications passed one of our brokers in order to avoid being refused. Our brokers have experience of the current market context and find appropriate loans for self-employed borrowers and those seeking maximum loans every day.

• May 2010

  The end of interest only mortgages?

  It's been a busy month so far in the world of French mortgages as buyers are back in the market looking to finalise deals after the lull during the Easter period. We have a seen a good pick up in the numbers of client enquiries, with a rise of over 20% on last month. The French banks have resisted increasing their rates, as the European Central Bank maintained its base rate at 1% for the 12th consecutive month. The likelihood of any rate rises in the foreseeable future seems remote owing to the troubles in Greece in spite of the 1 trillion bail out facility put in place by European finance ministers under the watchful eye of Chancellor Merkel and the animated figure of the French Prime Minister Sarkozy, who with a puffed out Gallic chest declared that if the deal was not agreed he would withdraw France from the Euro. So the Euro will remain weak in the short to medium term, with low interest rates to boot making buying conditions in France as good as they have ever been.

  Much has been written recently about the end of the interest only mortgage, which has been the product of choice for people buying investment properties. In France we have seen the withdrawal recently of several products offering interest only periods. The fact of the matter is that interest only mortgages are only a relatively recent addition to the portfolio of mortgage products available in France, and the conditions for obtaining such a mortgage have always been relatively stringent.

  For a pure interest only mortgage, borrowers have to have 120% of the amount they wish to borrow in equity, either in property, liquid stocks, tradable shares or bonds. The alternative would be to have a large deposit of 20% to 30%, or to place a side investment in cash with the lending bank of around 20%. Even in this case the bank may restrict the period where interest only is paid, tacking on a repayment period onto the end of the mortgage.

  In order to qualify for this loan, the would-be borrower will have to show that the monthly payment for the repayment (capital and interest) is affordable. We have seen a large increase in the number of borrowers looking to switch from a repayment mortgage to interest only, perhaps trying to release equity. However, with the reduction in the number of banks offering such products, this sort of loan is only available to those borrowers with the best profiles.

• April 2010

  Cap and Collar mortgages, Fixed rates and Fixed payment mortgages

  Over the course of the past month, more French banks have reduced their initial rates for non-resident mortgages in France. Although, the amounts are small, generally 0.1%-0.3%, these reductions do reveal increased competition in the market. The next point of competition will come when the overall spread, the amount of interest the bank adds to the loan as a margin, starts to fall again. These margins are approximately 35% higher than 5 years ago and should normally fall in line with increases in confidence and economic activity and rises in the European Central Bank rate.

  In the medium term, I do not see the overall rates for new mortgages rising all that much, as there are still many structural problems in most European economies which make a return to growth and confidence still at least 12-18 months out. Any increase in the ECB rate should also see some accompanying reductions in the margins, keeping things quite stable in the medium term. In an interesting development today we can now offer a fixed rate interest only mortgage of 4.75% for 10 years, one for the investors.

  As the general consensus is that rates will rise when the economy picks up, many of our clients are interested in mortgages which have a cap beyond which the rate cannot exceed. Rates are available from 3.75% on a +1%/-1% basis where the rate can increase by no more than 1% nor decrease by any more than 1%. Versions are also available at +2%/-2% and higher with the durations for these rates varying from 7 years up to 25 years. One thing to watch out for with cap and collar mortgages is the fact that the margin is only set on the day the mortgage is taken out.

  Alternatives to the Cap and Collar mortgages are of course fixed rates starting at 4.10% for 25 years on a repayment basis and 4.75% for an interest only mortgage fixed for 10 years at high loan to values. In addition, the curious and popular 'elastic duration' French loans are available from 2.6% over 30 years. These 'elastic' loans with variable durations have a fixed monthly payment but the duration of the mortgage can extend by up to 5 years. Once the limit of 5 years is reached, your monthly payments can then start to increase, but by no more than French inflation per quarter or year depending on which Euribor index the loan is based on.

• March 2010

  Conflicting messages in the French mortgage market. Have we reached the bottom?

  This month has seen some banks raising margins for non resident French mortgages, whilst others have lowered their rates, indicating some uncertainty in the short term. By comparison, in the resident market for mortgages in France, rates are still falling for both fixed and variable rate mortgages indicating competition for borrowers as the European central bank rate has not changed for many months. Stability is returning to the French housing market, with the average property prices up 0.6% in February, apartments up 1.4% and houses stable at -0.2% according to the FNAIM. What seems clear is that with any improvement in economic sentiment in the EU, French mortgage rates will begin to climb.

  Changes to the rules for French life assurance

  Many international buyers of French property are surprised to find that life assurance is compulsory for all French mortgages. Even more surprising is that the majority of French banks only allow applicants to use the life assurance recommended by the bank. However, this seems set to change with the Lagarde Reform which is currently going through the French legislative process. The main provision of this project lies in Article 17 which amends Article L. 312-9 of the Consumer Code as follows: "A lender may not refuse to secure another loan insurance contract when the contract has a level of security equivalent to the insurance contract that offers". Other amendments are also being proposed to strengthen consumer rights in this regard and the changes are expected to come into force on the 12th May 2010. This shake up should bring in more competition which is long overdue within the market with some insurance brokers saying that insurances costs may go down by over 50%. Typical insurance costs for a French mortgage are €30 per month per €100,000 borrowed.

  February 2010

  Athena Mortgages will keep you up to date

  This is the first monthly newsletter from Athena mortgages which is in direct response to the number of people requesting to be added to our mailing list on our website. In this newsletter we will keep you up to date on the factors affecting the French mortgage market for international investors, as well as information on products and interesting case studies. We hope you find this synopsis of key information useful and if you have any requests for information you would like to see here on a regular basis, please let us know.

  Rates move up due to EU economy fears

  Average rates seem to be trending upwards as it seems less likely the ECB will raise the base rate. Banks are looking for other ways to boost their coffers, so are raising margins to enable them to offer higher interest rates. The news from the savage cuts to public spending required in Greece, Spain, Portugal, Ireland and the UK will mean lower inflation for the medium term. We have locked in some rates for offers published in the next 2 months but clients have to move quickly to provide complete applications to stand a chance of getting the rates and conditions.