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

French Alps

The Profile

Property price: €1,720,000
Mortgage amount: €1,720,000
Loan To Value: 100%
Mortgage type: Repayment
Rate: 2.15% Fixed
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.


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.


April 2018 – French mortgage transaction of the month

What’s going on here?

Interest-only French mortgages are still a popular product for customers wishing to purchase properties in high-demand areas such as the French Alps and the French Riviera. This was the case for a customer who decided to purchase a house in a new development in Nice, southern France.

The €2.2 million house boasts stunning views of the bay with great links to the city centre and the airport. The customer opted for a 50-50 split on an interest-only mortgage. One part being at a variable rate of 2.4% and the second on a 2.75% fixed rate; both over a 14-year period.

The product

In this month’s French mortgage transaction of the month we can see the advantages of taking an interest-only mortgage are numerous. For example, low monthly instalments which can in turn maximise profits from potential rental income. Because of the low interest rates across the eurozone, it makes sense to use this opportunity of taking a smaller variable rate. It is a fair bet since recent news showed that the European Central Bank (ECB) isn’t in a rush to take its foot off the pedal on Quantitative Easing (QE) for at least another year, as we pointed out earlier this month. This brings confidence to French mortgage seekers that the golden period of low rates is likely to continue for some time.

For added peace of mind, the client decided to secure a favourable rate of 2.75% on the second half of the mortgage for the full duration of the mortgage. This is a smart way of locking up a low interest rate ensuring that they will know the exact amount of the monthly instalments for this part of French mortgage. In France it is possible to fix rates for longer periods of time than in the UK, because the banks across the Channel look for a long-term commitment over a short-term profit from their clients.

The bigger picture

The combination of the two products gives the client a great deal of flexibility with low rates on both variable and fixed terms. If the costs were to rise dramatically over the coming years, the client could opt to pay off the variable part of the mortgage early. In this case they would avoid  paying any early repayment penalty fees and see off the other half of the loan at the fixed rate.


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.