Posts in category: News

Deal or No Deal? How is Brexit affecting the French property market for UK buyers?

Big Ben

Introduction

Whilst things remain uncertain in relation to the eventual form of Brexit, perhaps this is the beginning of the end of a period of uncertainty over the past two and a half years in the French property market for which British buyers make up the majority of foreign ownership.

In summer 2016, the French property market was buoyant with a strong pound and ultra low interest rates. Many British buyers were taking the plunge and buying a dream property in France, engaging in a new chapter in their family’s history. The Brexit vote caused the value of sterling to decrease by circa 10%, increasing purchase costs by this amount.

The effect of this increase in the upfront costs was mitigated by the low fixed rates on offer from French banks where you could still fix your interest rate at 2% for 20 years, thus many people have continued to purchase property over the past 2.5 years.

However, not all sections of the market were affected equally. The prime end of the market and those looking for a cheap and cheerful property were less concerned by this increase in real terms of the cost to purchase their property

The fact is that when you have the €280,000 available to purchase a prime property for €1m with 80% on finance, if the cost increases by 10% (€28,000), this is not necessarily going to stop the purchase in its tracks. Chances are that if you are looking at a property in this price bracket, you have the funds and the confidence available to continue with the purchase.

Likewise at the lower end of the market, where the banks have seen growing numbers of requests for loans in the €100,000 region in recent times, increases in initial purchase costs are perhaps only a few thousand euros and small enough not to be a factor relative to budgets and income.

It is the so called squeezed middle, whose aspirations for a property in France exceed what would be wise from a risk perspective given deposit and Brexit concerns, who have not had the confidence to buy in large numbers.

Brexit has been dragging on now for more than two years. A difficult negotiation has been made even more so by the high emotion which surrounds the issue. As we get to the business end of the horse trading, we will soon see the outcome or at least have some more visibility on the outcome to enable the middle of the market to begin buying in France at a higher volume.

Some scenarios

No Deal

In the event of a no deal Brexit, many of the agreements between the EU and UK would become null and have to be renegotiated. However, what wouldn’t change are the specific agreements which exist between France and the UK. These agreements relate mainly to double taxation and provide a basis for the ongoing relationship as they pre-date our membership with the European union and have been updated along the way. Of course a No-deal Brexit would be traumatic in the media and result in a tougher 2020 as businesses adjust, taking some time for the British economy to recover from all the bad press, the loss of income and the higher initial expenses.

Existing owners

The overall effect of a no-deal would be a lower value of sterling for an initial period and thus those with existing mortgage payments in euros would see the cost go up by another 10%. Of course, commensurately anybody who owned a property in France would see the value of the property increase by the same amount. This means we might see some more property come onto the French market in tourist locations which again might drive the price down a little, keeping the status quo.

Those seeking to buy in 2019

For people looking to purchase in France from the UK, a no-deal Brexit would push up costs on the purchase price by approximately 10%. A small amount to consider if you have found the property of your dreams and you can finance up to 100% of the purchase price (leaving 30% with the bank in a collateral), but a serious issue if funds are tight. For this reason, I would want to say that the lower end of the market might see falls in prices in popular areas but that would be tempered by the fact that we have seen a return of French buyers over the past two years  being quite active and looking for value in the prime tourist areas, exactly at this level between €300,000 to €750,000. Because of this, I am not sure we would see much of a change in property prices at those levels.

A deal of some kind, is the end in sight?

As we have seen recently, the risk of a no deal has been reduced with the UK Parliament taking more of an active role in the negotiations. This has lead to an increase in the value of sterling of roughly 3% in January. This is due to the fact that we have a relatively strong economy with a very low unemployment rate which can be invested in if we have some more certainty which in turn, will lead to higher interest rates and returns for investors in the future. In this scenario, the sterling will continue to appreciate, bringing down the cost of mortgage payments for existing mortgage holders and reducing deposit and property purchase costs for UK buyers. This should then bring the volume back to all levels of the market as we begin to get back to where we were in 2016.

Reversal of the referendum

In the event of a “People’s Vote” which resulted in the cancellation of Article 50, we should work our way back to 2016 levels, sterling at €1.35 to the pound and French property looking even more attractive. The ultra low interest rates will begin to disappear as Europe and the UK pick up investment and we all wonder why we wasted two years. There will still be some uncertainty caused by the Brexiteers complaining and asking for a best of three with a neverendum situation as they have in Canada, with constant talks and threats of a new vote which may be a bit of an economic drag.

Extension of Article 50

This option also seems quite likely and would simply preserve the status quo, perhaps it might strengthen sterling which seems most sensitive to the prospect of a No deal. This would continue things as they are. Buyers continue where deposit costs are not a factor and avail themselves of mortgages at 80% LTV and in some cases at 100% LTV (with 30% collateral with the bank). The truth is that many see buying a euro denominated asset as a hedge and security against a downturn in the UK’s economic fortunes.

 

Buy now or wait?

So to the question of what is the best thing to do. Well like any good adviser, I would say it depends entirely on your situation. If the place of your dreams has been found and you have the deposit for it and it does not present a risk to your family, then now is a good time with low long-term mortgage rates available. This advice stands at any stage of the market. The French property market is known for long steady growth rather than the boom and bust of the UK, so providing the mortgage is affordable, it is a good long-term investment to be enjoyed for generations.


3 French Mortgage Options by Romeo

French Bank

The Classic French Mortgage: Lock in long term value

The standard mortgage option in France is repayment. You pay both principal and interest which means that the loan will be repaid in full by the end of the term. Repayment mortgages are available on second home purchases, buy-to-let investment properties and main residences. This type of financing provides the most security to the borrower. In fact, it is very easy to budget for the payments as French lenders can offer fixed rates for the entire duration of the mortgage.

For those looking at holiday lets, the break even point is generally around 50%-60% loan to value (LTV). This means that the rental income covers the mortgage payments and you will own the property outright in 20 years time. Property is a great store of value; so, investors in their mid 40s can reasonably expect to triple their money by retirement age.

The Lesser spotted French Retail Banking Interest Only Mortgage

In our experience a finance professional will generally opt for an interest only mortgage – you only pay the interest and will owe the same amount of money to the lender at the end of the term. This option frees up capital and allows investors to seek higher returns in financial markets as well as lowering the cost per month. This means the property rental income covers the mortgage with less capital employed. For instance, a fund manager that can achieve a 7% annual yield will have nearly double his investment in 10 years time. If he makes 10%, interest payments on the French mortgage will be taken care of as well. Rental income on the property can be used to rebalance the portfolio or make early repayments on the mortgage thereby mitigating risk. Again, this option has some serious wealth building potential but requires a bit more skin in the game and is not suitable for the risk averse.

The Private Banking Mortgage

It is possible to get a 100% LTV in France. In this case, the borrowers only have to pay for taxes and fees upfront which are not financeable. This type of loan is offered by private banks who are keen on building relationships with high net worth individuals (HNWIs). The borrower will place a minimum of 30% with the lender as a collateral. The industry standard is around €1m in assets under management (AUM), though we can find options with a lower amount. Private banks can be flexible with the way they invest your money and clients can choose from a large range of securities as long as the overall asset allocation is deemed appropriate. This means that borrowers can potentially transfer an existing portfolio and keep the collateral in its original currency. So, disregarding the taxes and fees, you could get yourself a brand new property without any changes to your current financial position.


Paris 8ème: €370,000 Mortgage, 70% LTV, Fixed Repayment, 1.35%, 20 years

Paris

The Profile

Property price: €520,000
Buying in: Paris 8ème
Mortgage amount: €370,000
LTV: 70%
Mortgage type: Repayment
Rate: 1.35% Fixed
Term: 20 years

The Context

Some banks, especially in the region of Paris, can be reluctant to work with non-residents.

They require the clients to have some history with France and a plan to live in France on the short-term. Basically, they have no issue financing a main residence but become hesitant for holiday home or investment properties. It is a shame as some banks have wonderful terms that could just create a whole new dimension on the Parisian property / finance market.

The client, a French entrepreneur who lives in the UK, was buying the last 2 floors of a Haussmann building to convert them into a duplex loft. The project was ambitious.

Our Approach

We were looking for the best rate possible at a high loan to value.

We have several contacts in Paris who could lend to our client with fixed rates ranging from 2% to 2.4% over 20 years. However, we found one who could offer 1.35% fixed for 20 years but solely to French nationals. We played the card that our client, though now living in the UK, was born and bred in France, that part of his business was made in France, that he already owned a couple of properties in France and last but not least, his father and grandfather each have had successful businesses in France. One could say that we provided the family tree, but guess what… it worked!

Having kept in touch with our client, he now informed us that he is selling the flat for 640,000 €. That is almost a 25% profit investment in less than 2 years. Well done sir!


Courchevel / French Alps: €603,750 Mortgage, 70% LTV, Fixed Repayment, 2.15% for 20years

Courchevel

The Profile

Property price: €862,000
Buying in: Courchevel
Loan Amount: €603,750
LTV: 70%
Mortgage Type: Fixed Repayment
Interest Rate: 2.15%
Mortgage Term: 20 years

The Context

The clients are avid skiers with a young family. They have been going to Courchevel for many years and dreamt of owning a property there for years. The project that our clients decided to buy was an off-plan property with a rental option included. This rental option meant that the clients signed a lease with the property developer where they are going to manage and rent out the property for 9 years. This is even more popular practice in the French Alps, because the local authorities fear the investors will not want to rent out their properties in already supply-deprived ski resorts. This is why a percentage of these properties will be sold with a lease.

Whilst these practices ensure a steady increase of beds in the resorts, it is generally met with a more conservative approach from the lenders. They put the management companies through a scrutiny to see how they have managed properties previously. Their concern is that the property and project must retain, if not increase, in value over time. Moreover, in an event of a client default, it is much harder for them to sell a property with rental obligation or lease attached. This is the main reason why some banks choose not to lend on projects where the property developers and/or management companies are deemed not to have sufficient track record.

Our Approach

The client had more leeway in terms of deposit than usual and so we were able to secure financing on 70% LTV of the pre-VAT price. This means that the client had to put down a little bit more up front, but the overall mortgage was on the pre-tax price as the rest is organised by the developer. This meant that the mortgage amount was smaller and the repayments less, which in turn means that the mortgage payment is close to being covered by the income from the rental.


Saint Gervais / French Alps: €280,000 Mortgage, 70% LTV, Fixed mixed Interest Only & Repayment, 2.05% for 20years

Saint Gervais

The Profile

Property price: €400,000
Buying in: Saint Gervais
Mortgage Amount: €280,000
LTV: 70%
Type: Interest only mortgage transitioning to repayment after 7 years
Rate: 2.05% Variable
Term: 20 years

The Context

This property professional borrower was looking to buy a piece of land and undertake a substantial new build project. The bank was asking for all the signed renovation contracts from each builder before printing the mortgage offer as it liked to have a good understanding of the whole project before releasing its funds. However, some works were only going to start  in 6 months time so the client could not/did not want to decide and provide these quotes before purchasing the land and getting started with the groundworks.

Our approach

With the clock ticking, and the risk of the property slipping through his fingers, we decided to finance the purchase of the land now and deal with the financing of the build later on. For this we required a bank that is happy to finance land only, which is a rare breed.

The client chose a mixed mortgage on a variable rate. For the first 7 years, the loan is on an Interest Only basis. After 7 years, the loan switches to a Repayment Mortgage over 13 years. As the client had other financial commitments, we wanted to keep the outgoings as low as possible on the French mortgage while still applying for the highest mortgage amount to help reduce any perceived loss on the exchange rate. This was made possible thanks to the interest only part and the high loan to value. The monthly payment on the repayment part of the loan was quite high but as the client would have paid off other loans before it kicks in, he was happy to proceed on this basis.


Cannes / South of France: €285,000 Mortgage, 60% LTV, Fixed Interest Only, 2.55%, 7 years

Cannes

The Profile

Property price: €475,000
Buying in: Cannes
Mortgage Amount: €285,000
LTV: 60%
Type: Fixed Interest Only
Rate: 2.55%
Term: 7 years

The Context

This retired private equity investor was concerned about his ability to secure a mortgage with a French bank. With multiple income streams including remuneration as a board member of 3 different companies, he had heard about how strict French banks can be on borrowers with complex financial affairs.

Our Approach

FPF went the extra mile to ensure the file was presented in the simplest manner to the lender. This meant a lot of back and forth with the client to ensure it was easy to understand for a foreign bank. The analyst had no questions on the application, a dream come true for any broker in the world of French credit risk assessment. The client was delighted with the speed of the application once we had the application in order.

Furthermore, the property agent was impressed by our level of service as we kept him updated throughout. He went on to sign a partnership agreement with French Private Finance.


Tourrettes-sur-Loup / South of France: €1,172,325 Mortgage, 70% LTV, Variable Repayment, 1.75% capped, 15years

Tourrettes-sur-loup

The Profile

Property price: €1,674,750
Buying in: Tourrettes-sur-Loup
Mortgage Amount: €1,172,325
LTV: 70%
Type: Variable Repayment
Rate: 1.75% capped at + 1% for the first 7 years
Term: 15years

The context

Having made a gentleman’s agreement to pay the vendors in Sterling, speed was of paramount importance to this HNWI.

Our approach

We applied for 70% LTV to waive the life insurance requirement and secure the offer in just over a month.

The standard mortgage in France is a 20 year repayment fixed rate. However, our advice was to go for a 15 year term to reduce total interest paid. Such adjustment can easily save borrowers tens of thousands. So, it is definitely worth looking at shorter durations for second purchases when income is available.

Furthermore, the client opted for a variable rate to not have any early repayment charges. The capped rate allows you to reap the benefits of low interest rate while still providing security against future interest rate movements.


Finding a solution for a HNWI buying off-plan in the Trois Vallées, French Alps

French Alps

The Profile

Property price: €1,720,000
Buying in: Courchevel
Mortgage amount: €1,720,000
Loan To Value: 100%
Mortgage type: Fixed Repayment
Rate: 2.15%
Collateral: 30%
Term: 15 years

For HNW clients, it is worth considering a private banking loan. Generally, the lender will finance 100% of the purchase price and require AUM (Asset Under Management) as collateral. The industry standard is €1m in lending in value. In fact, private banks are in the asset management business; hence, the loan is mainly a way to attract HNWI with the goal of extending the relationship.

Our Approach

We have several contacts with private banks where barriers to entry are less exclusive. Also, these banks can finance VEFA (off-plan property projects) which is rare in the private banking world. One of them was a great fit for this Ultra HNW client looking to buy an apartment from a prestigious developer in the Alps.
With over €85m of real estate investments and complex financial affairs overall, we could not apply for a classic loan with a French retail lender because they lack the know-how, and would not be comfortable lending when the borrower’s profile is not straight forward as well as the fact that the paperwork burden would be excessive. In contrast, private banks focus on the big picture. That’s not to say that they do not do their due diligence but the additional collateral gives peace of mind to the bank. In this case, it took 4 months for them to issue the mortgage offer.

The Process

Having done much larger property deals, the client was getting concerned at times throughout the process. However, it is no secret that things move slow in France and the process generally takes longer for non-resident buyers, especially when their situation is outside the box. By maintaining constant communication with the client and educating him on the underwriting process, French Private Finance kept his trust throughout and he was very pleased after meeting with the private banker.
The client opted for the security of a long term fixed rate mortgage as this is one of the most attractive options available in France.


New French Property Wealth Tax: Why not to under value your property?

French Property Wealth Tax: How to value your property?

The latest iteration of the French wealth tax in France, L’impot sur la fortune immobiliere (IFI) came in force in December last year focussing this tax on net property assets only and excluding financial assets from the overall French wealth tax calculation. This tax will generate far more that the predicted 850M initially. French sources suggest 1.2BN this year and 1.5Bn in 2019! Good work it seems from Monsieur Macron.

The main reason for this increase is that property owners are increasingly likely to reevaluate the declared value of the property which will lead to the tax windfall. The main driver for this comes from the upcoming anti-fraud law due to be passed in 2019 which will penalise owners for undervaluation of their property to reduce their tax bill.

What are the main ways to value a property in France?

The main and preferred method to value a property is the comparison method which establishes the market value by looking at recent sales of similar properties in the area local to the property. For buy to let properties, the rental yield can also point to a value for the market value by looking at what the property is renting and taking the average yield from similar properties and extrapolating the price at which a property could be sold in this manner.

A simple valuation of the property costs in the region of €1000 to €2000 depending on the purpose of the valuation. The survey is usually undertaken by chartered real estate professional in France who could be either an estate agent, surveyor or even a Notaire, though it is important to note that a professional valuation is not required for the wealth tax declaration. It is possible to simply ask an estate agent for a report on value which can usually be procured without payment.

What allowances are made?

It is normal practice for properties held in either SCIs or SARLs to benefit from a reduction of 10-15% in the value of the property as the property is deemed to be slightly less liquid. It is important to check your declaration and any reductions with a tax specialist.

What are the potential risks?

If an error in the valuation is found during a check of the property by the tax authorities then the size of the gap will be important. Less than 10% and all should be fine, more than 10% and penalties can be imposed not only for the year in question but the previous three years. In addition to late fees, a further penalty of 40% to 80% of the amount of tax which is being recovered may also be levied. If you have failed to declare the property at all, then the sanctions can be even greater with the tax authorities going back 6 years and the likely additional penalty being nearer the 80% mark especially in cases where bad faith can be established.


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.


Eze / South of France: €900,000 Mortgage, 100% LTV, Mixed Interest Only and Repayment, 2.3% fixed and 1.16% variable, 9 years

Eze South of France

The Profile

Property price: €900,000
Buying in: Eze
Mortgage amount 1: €750,000 interest only
Mortgage amount 2: €150,000 repayment
LTV: 100%
Type: Part Interest only & Part repayment
Rate: 2.3% Fixed + 1.16% variable
Term: 2 year interest only + 7 years repayment with 2 years on low start repayments

The Context

The client is a retired Doctor who has some property investments in both the UK and France. He was eager to buy a new villa in a small village town near Nice. He already had a mortgage-free property in the same town, but had decided to upgrade. He did not want to sell the existing property immediately as the rental of the property was going well.

The client was already banking with a large French retail bank with a branch in Nice. However, he struggled to obtain an interest-only mortgage as he did not have enough net assets. This only left us with a capital & interest repayment option and the main initial concern for the lender was the client’s age. He asked us for help with speaking to the head office of his existing bank.

Having discussed the options with the client’s existing bank, we confirmed that the bank could not offer an interest-only product as in their view the net assets in his portfolio were not sufficient to match their strict criteria. Furthermore, they refused to consider a mortgage on a 20 years on repayment basis as the client would be over 80 years old at the end of the term – the maximum repayment age.

We tried decreasing the duration of the mortgage, however, it was not possible due to the affordability ratio.The shorter the duration, the more the monthly repayments. As a result, the criteria of below 40% debt ratio was not met to support the new mortgage.

Our Approach

At that moment, we decided to apply for a mortgage with a private bank in Monaco. The private bank in question has no limit on age criteria and their attitude to debt to income ratio is more relaxed. Here, the bank looks at all the committed expenditure vs income too, however, when the ‘rest-a-vivre’ is more than a couple of thousand pounds a month, the bank will be satisfied that the client has enough money left over.

Moreover, speed was of the essence as the client had little time to complete the purchase after fruitless application with his original bank. Here, the private banker asked for far less documents when compared to retail banking counterparts thus, speeding up the process.

This private bank offers up to 100% LTV with a side investment of 30% to be deposited with the bank. Moreover, we could look at a short-term interest-only bridging loan, as the client is intending to sell his other apartment in the same village. Because of the so called ‘promesse de vente’, the bank was happy to lend on an interest-only basis as they were satisfied that this part would be paid off by the client when selling the property. This has been provisioned for 2 years with a possibility of extending for another 2 years if the criteria were met.

With the private bank, a charge is put against the property to be purchased as well as up to 30% LTV of the loan amount is asked in cash collateral. This acts as an additional security, but the idea is that the bank can show the client how they can grow the invested capital with the bank. Private banks look for the longer term relationship with their client’s and want to impress the client with how they manage their portfolio.

In the end, we’ve managed to place the mortgage with the private lender on split basis where the majority of the loan was put on to a interest-only part on a two-year renewable deal. As long as there is a secondary property to be sold in the near future, the bank is happy to renew the deal at their discretion. The 7 year repayment had a low-start initial period of 2 years – essentially an interest-only period before the mortgage switches to repayment. After that the month payments were increased.


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.