After Covid-19, how has the French mortgage landscape changed?
1 – Overview of the situation
Late 2019 and early 2020 saw French mortgage rates reach all time lows. During that time, we managed to secure a 20-year repayment mortgage with a fixed rate of 1.08% in the French Riviera, a 20-year repayment mortgage with a fixed rate of 1.20% in Paris and a 20-year repayment mortgage with a fixed rate of 1.35% in the French Alps.
The Brexit environment had spooked the French banks a little bit but that did not stop the take up of new loans. The ratification of Brexit at the end of January 2020 actually created some certainty (for at least another 12 months) and banks grew more confident.
In February, we saw the first cases of Covid-19 in Western Europe (Italy and France) until it spread further to the UK and the whole Europe. Lockdown was declared in France and the UK by mid-March and has so far lasted over 2 months. Since the end of May, the lockdown has been partially lifted and the new normal is beginning to get established.
2 – What’s happening in the French real-estate market?
We have noticed reductions of the listed purchase prices, from 5% to 15%. It all depends on the area of purchase, the demand and the supply.
French banks generally require a survey of the property so clients could actually go back to the vendor with some good grounds to negotiate.
Some experts consider that the market will not increase until 2022, which is not that far away.
3 – What’s happening in the French mortgage market?
French banks have continued to take in mortgage applications but have been slower while they were focusing on the pressing needs of local businesses and residents to get through these times. The bank workforce was reduced, the delays extended but never did the banks stop lending, which shows how strong the market can be.
Some banks, who generally required a meeting in France to open a bank account for example, accepted to change their process: clients just needed to have the documents certified by a notary in the UK for example. Again, it shows how willing some are to keep doing business.
4 – What about the criteria, rates, loan-to-value and guarantee?
Banks will look carefully at the industry the clients are working in. If you are in hospitality, tourism, etc… they will look twice as hard at the numbers and scrutinise every possible detail to make sure the loan is affordable through the first few years. Some banks have decided not to take into account the bonuses, relying only on the basic salary. French banks are cautious (over?) but this is what keeps the market strong: less risky than other real-estate markets in the world. This is where your broker is important. We are experienced and have good relationships with the banks which makes it easier to argue on a case-by-case basis to increase your chances.
If you follow the France 10 years BOND tracker, you can notice an overall increase of the index the last couple of months. Same with the EURIBOR 3m, with a variation from – 0.43% to – 0.28%. Those are signs that the mortgage rates were going to increase. We have seen our best banks increasing their rates from 1.50% fixed on 20 years (repayment capital) to 1.80%. Though the increase can be seen as a giant leap in the context of the markets, the rate itself is still excellent: Can you imagine having a fixed rate of 1.80% over 20 years? After inflation, that is still good value for money.
In regards to the Loan To Value (the percentage of loan to the purchase price), many banks are keeping the percentage rate unchanged. We haven’t noticed a difference for most files. However, when going for mortgages over 1M€, we have seen more of a chance that the LTV can be reduced (for example from 85% to 75%), depending on the profile of the client and other factors. Overall, the average loan to value is about 70% which is still excellent.
Going hand in hand with the loan to value is the collateral (assets under management). In order to keep or increase the LTV in some cases, a few French banks will not hesitate to require some funds to be placed within their books for the duration of the mortgage. That’s when they are pledged. But once again, for mortgages below 1M€, not much has changed.
Overall, the terms offered by French banks are still excellent, enabling you to fix a low rate on the long terms which eases your financing plans and gives you some safety. Some banks are tightening their affordability criteria but that is all to protect you and make sure that the investment is as safe as it can possibly be (remember, there is always an element of risk). The mortgage landscape seems strong enough to go through these times scarcely changed.