French property price discounts harder to come by in major destinations

New released figures in France from the Se-Loger french property portal indicate that the margins for negotiation on property prices have never been so low. The study has been done on the prices the property was listed for versus the eventual sales price recorded at the Notary’s office. The differences are now very slight across many regions of France with home sellers reluctant to reduce prices further.

For apartments in the Rhone-Alpes region, the reduction seems to be a maximum of 2.6% compared to perhaps 3% in the Paris region. Other regions of France have a more substantial average margin, when looking for the market for houses. In Britanny you can expect a possible reduction of 5.5% and up to 9.1% in Champagne-Ardennes.

Our view

The effect of a slightly weaker demand leading to lower initial pricing of the property has lead to this situation where sellers are not willing to drop their prices any further. In our experience we have seen some very large discounts in the past whereas more recently the amount of discount a client has had has been less of a topic of discussion.

Location, Location

As we can see from the above data, this is another example of the way in which the location of a property drives both its liquidity and its value. Properties for sale in Paris do not stay on the market for long and are usually snapped up by buyers from either local or international markets often with buyers competing for the apartments. On the other hand in the less populated areas, houses can sit on the market for years, especially if the house is unusual or very large and requiring maintenance. After a few years on the market 10% would probably be the minimum you might expect by way of discount and you may also encounter problems obtaining finance as the banks may worry about lending against a property that has been on the market for such a long time.


French mortgage trend: ‘Nantissement’ deals back in fashion with ski buyers

French mortgages new trends

Old school French mortgage lending is making a comeback. Non-resident buyers are opting for French mortgages with additional collateral or ‘Nantissements’, which are paving the way to lower mortgage rates and enabling investors to make money off their Nantissement side investment. This structure also provides access to 100% financing, thus potentially avoiding buying euros.

Nantissement deals are where, instead of giving 20-40% of the property price as a deposit secured on the property, a buyer takes a loan at a 100% loan-to-value rate and then places a side investment in cash collateral with the bank, usually equating to 20-40% of the property price.

With a standard fixed term product at 2.15% with an 70% loan on a 500k purchase, in theory investors put down a €150,000 deposit, therefore getting a €350,000 loan and paying €81,000 in total interest over the term. With a Nantissement product at 1.55% and 100% loan (€500,000) investors pay the same interest over the term (€82,000) but the big difference is the additional investment of 20-40% that’s put on the side. These investments would accrue interest, depending on what type of product was chosen for it.

“Nantissements are old but they’re become more attractive to buyers, especially those who are au fait with France’s low long-term lending,” says John Busby of French Private Finance. “In effect, the amount of money the buyer is putting down remains the same but the rate on the mortgage is lower. The client can also obtain a return on the money placed with the bank.”

“Given the current exchange rate, the 100% lending option is also attractive as it may be possible to not have to convert sterling into euros if there is a portfolio of stocks or shares which can be transferred to the bank.”

“The cash or portfolio collateral provides more security for the bank and in return the banks lower the rates, which provides an instant guaranteed return on the money placed with the bank as the overall cost of the mortgage is reduced.”

“Private banks have long attracted clients with this structure so it is refreshing to see this kind of offer for loans both below and above €1m, especially as retail lenders can offer extremely low rates fixed for the long term anyway.


September 2018 – French mortgage transaction of the month

French-ski-chalet-French-mortgage

This month’s French mortgage transaction of the month involved an unusual situation where this British captain of industry was purchasing the completed shell in Meribel for €2.4m with an additional amount of €1.2m to be funded for the fitting out of the interiors.

Usually, this type of construction is either carried out using one provider, however, in this case, the client had to reserve the property before the shell was complete and before all the estimates for the building work had been obtained, therefore increasing the number of parties involved and making it more complicated as a result.

We worked initially to ensure the client had a watertight agreement in principle in order that he had enough confidence to move forward. Once the reservation was made we completed the French mortgage application in 8 weeks working on a tight schedule and negotiating a 0.15% discount to the rate.

Overall the rate we secured was 2.5% for a fixed rate interest only mortgage with an LTV of 75% across a term of 14 years.


New income law in France: what does this mean?

As a result of the law that has just been passed regarding income tax in France, it is understandable that taxpayers are wondering whether or not the French mortgage market will be affected.

Until now, France has had a system in place for income tax collection that requires taxpayers to pay their tax in a retroactive way, meaning that they pay up to three times a year (the following year) and not on a monthly basis. Emmanuel Macron has now confirmed that from January 2019, tax will be automatically deducted from taxpayers’ salaries each month in real time, known in French as ‘le prélèvement à la source’, the same as the UK system.

With this announcement, some concerns have arisen with regard to purchasing power for real estate purchases. Until now, banks have calculated potential borrowers’ affordability capacity regardless of the income tax, measuring the capacity to borrow using net income and deducting monthly charges as a case by case.

Now that income tax will be deducted directly from monthly salaries, there is concern that there will be a loss of purchasing power due to the banks’ new calculations, though any move to this new calculation does not yet have a large take-up.

HSBC have started adapting to this measure and promised to take into consideration the  after-tax take-home pay when the new regulation comes into place in January 2019. However, we haven’t heard from other banks so far.

From a psychological perspective, buyers may feel less well off which could dampen the enthusiasm in the market that we have seen in the recent months due to the low mortgage rates during summer.


Real estate loans: rates remain attractive

In June, we reported that real estate loans were still low, making it an optimal time for real estate purchases (read here). “Mortgage rates are expected to increase only moderately in 2018 and end the year between 1.65% and 1.70% at most” predicted Crédit Logement, specialists of real estate loans.

So it is no surprise that now, two thirds of the way through 2018, you can still take advantage of low, fixed interest rates. The trend observed in Les Echos’ previous barometer of mortgage loans in July states that rates have not gone up and, in a few minor cases, they have fallen.  

In August, credit broker Credixia stated: “real estate rates remain close to the low levels observed in November 2016. The majority of our partner banks posted financial conditions down, on average 0.10%, for loans longer than 10 years”. For other brokers, the majority of banks stated that their rates remain unchanged.

All banks offer less attractive rates on certain profiles,” adds Credixia. The broker quotes the following cases: borrowers investing in Île-de-France; health and legal professionals; single borrowers with incomes higher or equal to 4,000 per month; those with higher than a 10% deposit excluding expenses; those with an income exceeding 100,000 euros per year and, finally; borrowers who existing customers of the bank. For these customers, says the broker, “the discount can reach 0.65% if it is an excellent profile. In all cases, the bank will do its utmost to align or do better than the offer offered by the competition in order to retain its client.


August 2018 – French mortgage transaction of the month

French mortgage transaction of the month August 2018

August’s French mortgage transaction of the month is about a UK based entrepreneur looking to secure a large property loan but without placing a side investment, which normally the done thing at this level, or within private banking structures, in order to increase the viability of the loan.

We negotiated the best terms we could with a local bank and as the purchase price was in excess of €5m, we had to take into account the new rules relating to the ISI wealth tax, which meant only 60% of the loan would be deductible + 50% of the amount over €5m.

The property was a large detached ski chalet priced at €7.04m with a loan amount of €5.28m and an LTV of 75%. An interest only rate of 1.95% fixed over 20 years was secured.

The client was attracted by the low rate and the fact that he could be sure that that loan would amortise of the full 20 years allowable under the new rules. Using our experience and track record we were able to deliver the offer in good time. It pays to have experience and good contacts at this level as there are many pitfalls to navigate and one wrong move could lose the option and jeopardise the sale.


Real estate loans: rates still low

This year remains an optimal time for real estate purchases. This is because rates remain exceptionally low due to constant competition between banks to attract the best profiles of borrowers.

The Notaries of France have established that 965,000 transactions were made in real estate between February 2017 and February 2018, an increase of 10.9% on the previous year. These excellent figures were predominantly driven by low credit rates.

Rates that remain attractive

In its latest statistical analysis, the Crédit Logement observed that in March 2018, the average nominal rate (excluding mortgage insurance) was 1.49%. Conditions were almost identical to those in 2017 which likely encouraged candidates to purchase. “Traditionally, in the spring, a very active period in real estate transactions, banks lower their rates considerably o capture a client base of new buyers … This is how we are getting rates close to the historical records of 2016,” says Sandrine. Allonier, Director of Bank Relations of the broker Youfinancer.

A slow and gradual rise in interest rates by 2020

“The pace of inflation is unlikely to decline in the future: after 1.2% in 2017, it should be between 1.3/1.4% (banking scenarios) and 1.6% (Banque de France) in 2018, and should accelerate slightly further by 2020 (1.8% according to the Banque de France)”, says the Observatory. “Mortgage rates are expected to increase only moderately in 2018 and end the year between 1.65% and 1.70% at most” predicted Crédit Logement.

Longer loan terms

2017 was synonymous with rising property prices, especially in popular areas. Low rates helped to absorb this price increase by extending the duration of loans. In the first quarter of 2018, the duration of bank loans were 219 months on average, or 18.25 years, according to the Housing Credit Observatory. Over the 2014-2018 period, the duration of loans has increased by more than one year.

Market lull

For real estate professionals, the first quarter of 2018 demonstrated a stabilising of the market with transaction volumes much quieter than in 2017 and prices that remained stable. “While the volume of transactions jumped 14% last year at national level, growth at the beginning of the year is only 2% compared to the last quarter of 2017” says the Laforêt network.

The advantage of online offers

In this context, it is in the best interest of bidders to take advantage of the competition that banks are pursuing to find the most competitive offer, according to their profile. In this respect, online banks have advantages over traditional banking networks. Thus Boursorama Banque offers a 100% online offer from the application to the loan signature, with some of the lowest rates on the market. Another advantage of Boursorama Banque is that they do not charge any fees. As a mortgage is not only a rate but also a long-term relationship between the borrower and his bank, Boursorama Bank have chosen to favour flexibility. For instance, they do not require proof of a regular income into a bank account to apply for a mortgage, nor do they give penalties in case of early repayment.