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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.


July 2018 – French Mortgage Transaction of the Month

As we come to the end of the ski season, this month we focus on the booming resort of St Martin de Belleville in the French Alps.

This British CEO came to us seeking a loan after having been refused several elsewhere. Despite an incredibly strong profile, French retail banks were not able to take into account 100% of the client’s income as they were over the age of 57. In addition, many private banks are unable to grant loans for construction projects due to the changing nature of the value of the asset under security and during the project they find it difficult to assign a proper value to the property.

We have access to and partnerships with private banks that will lend money for construction projects so for this apartment worth €3.2m we arranged for a 100% loan at a fixed rate over 20 years with just under €1m being transferred to the bank as additional collateral in a mixture of cash and other assets.

For further information on acquiring French mortgages, please get in touch.

 


Mortgage patterns around France

With France’s variety of destinations (coastal, city, alpine & rural) each investor’s reasons for buying is different from the others. However, there is a pattern in the numbers though, as our graphic below shows.

Generally the pattern is one of tourism, with those areas frequented by the most national and international tourists generally offering the best mortgage rates.

One reason behind this is that, whilst banks don’t take potential rental income into account with individual applications, they do see these areas as the most reliable, with tourism supporting the rental markets and often, as a result, the property sales markets of these destinations too.


Real estate credit: France champions rates in Europe

Crédit Foncier has published the sixth edition of its European study on mortgage lending. France has confirmed its dynamism in this area thanks to low rates and a very reasonable level of debt per household.

France is moving towards a dynamic mortgage market, apparent based on the latest edition of Crédit Foncier’s annual study on residential real estate loans. The study covers the 28 member countries of the European Union.

France bronze medal of credits

With €984bn outstanding at the end of 2017, France accounts for nearly 15% of total outstanding mortgage loans in the EU. This puts it in third place in the pack of countries with the highest volumes of loans, just behind Germany (with €1.175bn) and the United Kingdom (€1.360bn). According to the study, Germany and the United Kingdom alone account for 40% of mortgages while they represent only half of the population in Europe.

A French market growing faster than the European average

At the European level, Crédit Foncier reported that €6.4bn were outstanding at the end of 2017, depicting an annual increase of around 4.3%. By comparison, the French market recorded a volume acceleration higher than the European average with growth of 6% over one year.

2017 – an exceptional year

This situation is owed to the fact that: “France stands out above all for its very low level of pricing. It displays the most attractive mortgage interest rates among major European countries: 1.56% in the second half of 2017, compared to 1.83% in Germany, 1.92% in Spain, 2.05% in United Kingdom and 2.42% in the Netherlands “, reports Crédit Foncier. It must also be added that the year 2017 was exceptional in terms of real estate transactions since they closed in on the one million mark and recorded an increase of more than 15% compared to 2016.

A favorable situation that should last in 2018

With lower borrowed amounts, a reasonable level of debt and some of the most competitive rates, France could continue to benefit from this “state of grace” during 2018. Thus, on the side of the rates, the fuel of the market, it’s still calm with rates still below 2% and, in terms of activity, if the frenzy experienced by the soaring market in 2017 seems positive, professionals now expect a soft landing and more reasonable volumes but with stable prices.


June 2018 – French Mortgage Transaction of the Month

This month we’re back in the Three Valleys helping a client with a complex income solution.

Looking to buy a €2.25m property in Méribel, this leading Irish real estate developer had a financial set up that was too difficult to explain to French retail lenders. Despite our best efforts the French banks could not consider enough of the income to make the loan work for this purchase of an existing property in Méribel Les Allues and he did not wish to complete in cash due to the exchange rate at the time.

Instead we opted for a loan with a private bank where the client had to open an account with a minimum of €1.2m in assets with the bank. The client was attracted by the fact that he could use Sterling to fund the account and so would not have to exchange his pounds for euros at a disadvantageous rate. We obtained a fantastically low rate of interest at 1.38% with 100% LTV at a fixed rate of 5 years for this interest only facility.

For further information on French mortgages and how to calculate your affordability for a French mortgage please get in touch with one of the team.


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.


March 2018 – French Mortgage Transaction of the Month

This month we look at an booming sector of the French mortgage industry – re-financing.

Whilst technically this one isn’t a done deal yet (and therefore not truly a transaction), we wanted to highlight it as it demonstrates the incredible savings French property owners are currently making on their total long term interest amount by re-financing their properties while the rates are low.

The client, an owner of a three-bedroom ski apartment in the Portes du Soleil still had €640,000 remaining on his mortgage. The original product was a long term fixed rate repayment mortgage over 20 years, but as it was secured back in 2012 the rate was substantially higher, at 3.2%.

Using our contacts with a local bank and based on his profile we managed to secure him a market-beating rate of 1.7% fixed over 20 years on a repayment, no far off half the rate he was on previously.

Local banks are notoriously hard to find and work with, which means having a specialist broker navigate the process exponentially increases the chances of a better deal for those re-financing or even new entrants in the French property market.


IFI – New French Wealth Tax

French Wealth Tax – What’s happening?  

France has always had a reputation for being a high-tax environment, though the truth is it’s one of the most advantageous places to buy property from a tax perspective. However, there is a tax levied against net property and liquid assets held in France which has been part of building this reputation. Nevertheless, it mainly affects French residents rather than international buyers of French property. Since the high-profile exodus of over 60,000 millionaires during the last 10 years, there has been a significant drop in revenue into the government’s coffers. The Macron administration is hoping to entice the French expat elite back with a new wealth tax based on real estate assets only. This is also good news for British expats as well as non-residents with French mortgages.

Why is this important?

As stated above, the current wealth tax – Impôt de solidarité sur la fortune (ISF) – is soon to be replaced by the incumbent president’s Impôt sur la fortune immobilière (IFI). Apart from the rebranding, there are some changes to how this tax will be calculated. The current system is levying all the assets that one possesses whether in France or abroad (if a resident). The new tax will no longer apply to liquid assets. Instead, only real estate assets will be subject to tax in a bid to attract high net worth individuals back into country, having left France to shield their assets abroad in countries such as the UK. The revenue will come down to a mere €1.5bn, while the framework and scale remain unchanged.

How does the French Wealth Tax affect me?

If you’re thinking of buying a property in France or if you already own one, it might be subject to the new IFI. However, you are exempt from paying the IFI tax if the net property assets are inferior to €1,300,000. Below you will find a threshold tariff table. 

The threshold net value subject to tax Tax rate
Up to €800,000 0%
From  €800,001 and €1,300,000* 0.50%
From €1,300,001 and €2,570,000 0.70%
From €2,570,001 and €5,000,000 1%
From €5,000,001 and €10,000,0001.25%
Above €10,000,000 1.5%

*This will only apply if the net property value is at €1,300,000

The bigger picture

It’s worth considering taking a mortgage on your property even if you can afford to pay for it with cash. This will help you avoid paying the wealth property tax for potentially several years. We can put you in touch with the right person to speak about your options. For French mortgage rates, please consult our best buys table.


French mortgage interest rates unlike to rise in short term

 What’s happening here?

The European Central Bank (ECB) has announced recently that it will take cautious steps when considering raising the interest rates.This slow approach will ensure a continued growth of the eurozone economies and avoid repeating the mistakes of 2008 and 2011.

Why is it important?

Ever since the financial crisis of 2007, the ECB have acted to support and protect the economies of the eurozone by buying different types of securities, especially government bonds, to keep the interest rates as low as possible. This in turn pushes people to spend more, for example, by borrowing more money and therefore contributing to growing the economy. This programme – quantitative equity (QE) – is expected to last at least until September 2018. It comes as a surprise to some analysts who expected the bank to start withdrawing its aid system sooner due to the Eurozone economy showing strong signs of growth.

How does it affect me?

This is good news for people looking to buy property in France. With the bank promising to spend €30bn a month on buying bonds, the interest rates will not rise across the Eurozone, at least not drastically. This applies to any type of loan and especially to interest rates for French mortgages. Commentators in France have noted that interest rates slightly decreased in October and now, on average, you can obtain a French mortgage interest rate in the region of 2%. The president of the ECB, Mario Draghi, has said that it is likely the bond-buying scheme will continue beyond September next year. With this in mind, borrowing money in euros looks set to remain attractive. This is especially true because of the continued strength of the euro despite the uncertainty of Brexit negotiations. Furthermore, French property prices, which have seen healthy growth in recent times (cf. 7% on average in Paris alone), are a good investment alternative to make your money work harder as opposed to the low-yielding savings accounts.

The bigger picture

The ECB has been criticised for not outlining a more daring programme to scrap QE. Especially when the Federal Reserve Bank, has already decreased its buying scheme. The American economy has continued to show strong growth in year to date. In spite of this sceptical view from economists, the ECB’s announcement translates to greater stability of the countries with common currency and fingers crossed avoiding stagnation of the economic growth.


Record-level of borrowing in sight for 2017

What’s happening here?

With French mortgage interest rates just above their all-time-lows, the number of new mortgages in France is set to reach a record figure of €260 billion in 2017. This is due to favourable market conditions with French and international buyers who are keen to capitalize on cheap mortgage rates, well priced property and stable price increases.

Why is it important?

The French mortgage market has been extremely active in the last year. Despite the recent slowdown over the holidays, the total amount of outstanding loans in France reached €935 billion in August – a 6% increase for the same period year-on-year. Since the beginning of 2017, the total value of registered new loan offers in France has seen an incredible 50% increase totalling €210 billion for the year to date. Even in the most conservative scenarios, the predicted cumulative sum of new house loans will surpass the previous record of €251 billion set in 2016, according to Les Echos.

How does this affect me?

With the end of the year looming, the French banks are keen to finance projects that will complete this year to maximise their revenue towards their annual targets. This means they will be prioritising applications which they think can be completed before Christmas.

The bigger picture

In spite of the record year in progress for mortgage volumes, there still seems no immediate threat of increases to long term French mortgage interest rates. Once this Bloomberg index goes consistently over 1%, we will start to see adjustments to interest rates.


Changes to French mortgage insurance from the New Year

WHAT’S HAPPENING HERE?

The so-called ‘Bourquoin’ law envisages changes to French mortgage insurance. The new legislation will allow you to swap your insurance from your lending bank to another insurer at each renewal date. The majority of borrowers choose to insure with the same institution.

WHY IS IT IMPORTANT?

From the start of next year, it will be easier to notify your lending institution that you no longer wish to use their French mortgage insurance at the end of the contract. To do that, you will have to send a letter (2 months before the renewal date) along with the new contract from your new insurer. The guarantees of the mortgage insurance will have to be at least the same as your former agreement. In theory, this will open up this rather complicated market and should play to the advantage of the loanee.

HOW DOES THIS AFFECT ME?

Mortgages in France must be accompanied by a life insurancepolicy. However with some lenders and in some cases, it is possible to obtain a loan without life insurance at lower loan to values. Examples of this would be below 50% LTV. However, this is by no means guaranteed and the banks reserve the right to insist on life insurance. With the new legislation, you could potentially obtain a lower payment rate for your mortgage insurance for your existing mortgage. You will be free to choose from an array of insurance brokers available on the market, thus potentially reducing your monthly premiums. However, French banks are hesitant to approve mortgages with life insurance from other institutions; they will not surrender without a fight and may set new conditions to the loan such as increasing the rate or the annual fees.

THE BIGGER PICTURE

The French banks are unlikely to accept an overseas mortgage cover to replace a French one and changing will be difficult. This is why, as with your French mortgage, it is very important to secure the correct product from the start to avoid unnecessary complications down the line.

 

Read more onlife insurance cover.