Euro update 2010

For what seemed like half a year investors hated the US dollar. They hated the slowdown in US growth, they hated the advent of a second round of quantitative easing (“printing money” as the naysayers describe it) and they had little interest in the benefits of a safe-haven currency as long as China, Germany, Brazil, Australia and the rest of them were reporting economic progress. Once the problems of Greece’s fiscal deficit had been sorted out by a fusillade of EU and International Monetary Fund cash, back in May, they loved the euro.

That picture has now been reversed. It is impractical for investors to hate the world’s two biggest currencies at the same time; where else would they put their money? So they have fallen back in love with the dollar because they don’t like the euro. They don’t like the way the peripheral states are falling like ninepins to the curse of fiscal improbity. Greece has had to be rescued from bankruptcy and Ireland is following the same path. Lined up in Ireland’s wake are Portugal (almost certainly) and Spain, which would be a much bigger headache for the EU stability fund. The worst case would be if Belgium and Italy were to end up in the same boat.

Compared to its cross-Channel (and Irish Sea) neighbours, Britain is doing relatively well. Four successive quarters of growth have added 2.8% to the size of the UK economy and the number of job-seekers actually fell in October, contrary to predictions. It is unlikely that progress will continue at that level but the prospect of a second recessionary dip now looks faint. Unless and until Euroland can get its budgetary act together it is likely that the dollar will lead the way, followed by the pound and trailed in a distant third place by the euro. Of course, miracles can happen….

News round up about property prices in Paris

Paris property prices up 10.6%
Prices for Parisian ‘pieds-a-terre’ are strongly up on the same period last year according to a recent study. The average property price has for the first time broken the €7000 per square meter barrier. Transaction numbers are now at the average levels seen during the boom years of 1999 to 2007, having risen 23% since Q3 2009.

Hips for France?
A new law will come into force on Jan 1st 2011 making it a requirement for all vendors to produce an energy “DPE” report on their property before putting the property on the market. This will mean a reduction in stock at the beginning of the year which should underpin current pricing levels overall but also act as a tool for negotiation for price reductions on older properties.

French rates at lowest level since WWII

October saw average French rates fall to their lowest level since the Second World War. The average rate now stands at 3.30%, down from 3.40% the previous month. One of the reasons rates are now so low is that the interest rate on long term government debt is at its lowest level for 200 years. As the French market has fixed rates for the term of the mortgage as well as a wide range of capped products, you can limit your exposure to future rate rises and lock in long term value. Quite simply, the cost of borrowing money in France has never been this cheap or secure for such a large number of people before. The euro may be strong now, but the fact that you can access near 100% funding means that it does not matter what the exchange rate is. The long term value of low rates, combined with low property prices, far outweighs any currency considerations. You can always buy Euros when the timing is right and your home currency is strong against the Euro.You can’t always buy property near the bottom of the market with historically ultra low interest rates. We have been warned that some banks will start raising their fixed rates in early November by up to 0.2% so now is the time to try to secure an ultra low rate.

To see the graphs on this topic, please view a presentation here.

Euro update 2010

The Euro has made the most of its good fortune. Over the course of six weeks it added 10% against the US dollar and 9% against the pound. Its success against the dollar was mainly due to investors dislike of the USD. A knock-on effect of all the activity in EUR/USD trading, has been that Sterling has been left behind.

Nervousness has dogged Sterling throughout October and there could be more problems on the horizon. Firstly, the Government’s “austerity” policy may well tip Britain’s economy back into recession, and secondly, the Bank of England could well decide to run another round of quantitative easing that would dilute the currency’s value. Either one would disadvantage the pound, while the two together would be a real problem.

However, there was a little cause for optimism, with the release of Britain’s figures for economic growth in the third quarter. Maybe, things aren’t as bad as everyone thought. The numbers are far more positive than even the staunchest optimists had expected. Growth of 1.2% in the second quarter and 0.8% in Q3, have set Britain up for a financial year well ahead of the government’s estimates.

Sterling is not off the hook though. There will be two revisions to the third quarter growth figures and both could be detrimental to Sterling. Half a million public sector redundancies might destroy consumer confidence and plunge the economy back into recession. On the other hand, the UK economy has performed appreciably better in the last nine months than most analysts predicted.

The Euro has lived a charmed life during the last two months. At some point its luck could well run out.

Transaction numbers increasing

Recent figures show that the transaction numbers are increasing in France, providing a knock-on effect on French house prices. The number of transactions annually stood at around 800,000 or more for the five years preceding 2007, before sales numbers across France began to fall. The main reason for these falls was a combination of very high interest rates and inflation just prior to the financial crisis and the collapse of confidence thereafter. This continued until the middle of 2009, when annual transaction numbers stood at just over 550,000. It is no surprise that as mortgage finance became more affordable, and the end of the world didn’t materialise, people were drawn back to the market, especially as in some cases buying was cheaper than renting. Since mid-2009, the number of completed house purchases in France has risen by around 100,000 per year. The figure now stands at just under 650,000 with the v-shaped recovery continuing. House prices have followed more or less exactly the same trend, with mid-2009 seeing prices start to rise again, and this upward trend has continued. While transaction levels remain below their peak, bargains and discounts will still be possible to find but these will become rarer as the market picks up again.

Click on this presentation to find graphs illustrating these figures.

French fixed rate mortgages fall again

September saw fixed rate mortgages fall to their lowest ever level, as predicted in last month’s French mortgage watch. The TEC 10 fell to 2.54% on the first of September and rose from there through the month to 2.85% dropping back to 2.66% by the end of the month. We are not currently seeing rises in the rates but October may bring small increases to some lenders fixed rates. There is still some regional variation in the fixed rate mortgage market with banks in Bordeaux, Limousin, Poitou, Charentes and the Midi Pyrenees all offering lower rates than for other regions.

On the variable side of things, there still seems no sign of a hike in the base rate which would bring changes to the 3 month Euribor rate against which the majority of variable lending is pegged. The 3 month Euribor is up to 0.88% from .65% in May largely due to the perceived increase in risk by banks lending to each other. If you are thinking of buying in Alps and have a 20% deposit, you could go for a variable mortgage based on the CHF Swiss Libor rates which would bring you in a variable rate of just 0.80% including the bank margin!

Euro and sterling update 2010

The euro has been doing well despite some dodgy Euroland statistics. Granted, Germany’s economy grew by +2.2% in the second quarter, way ahead of anything else in the region (Britain +1.2%) but the euro zone as a whole only managed +1.0%; not the stuff of legend.

Consequently, sterling has suffered against the euro – to the tune of five cents – even as it rose by three against the dollar. There are several worries; renewed quantitative easing that could undermine confidence in the currency, falling house prices and high government borrowing. The biggest concern, however, is that government spending cuts will tip the economy back into recession.

Fortunately for the pound, the International Monetary Fund (IMF) disagrees. Its recent report says the recovery is “under way”. It believes government policy is “appropriately ambitious” and that “fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery.”

Currency sentiment has been particularly fickle this year. Investors’ love/hate relationship with the euro and the dollar flips on an almost monthly basis and sterling either dodges or suffers the collateral damage. That situation is not about to change but, trades unions permitting, the UK economy seems to be no more under threat than its G7 peer group.

La Rentrée-Property market open for business

September marks the point at which France wakes up again after the annual slow down for their renowned annual vacations. France has been gearing up throughout September and we are now seeing a large increase in the number of completed transactions. The market for French property is certainly back in action with the number of leads received by up 33% on last month.

The extent to which France is effectively shut for business during this time is not to be underestimated. One Notary we spoke to in the early summer effectively told us he would not be available for the next six weeks. This pattern is mirrored across France with many other government departs unreachable. At, we always warn clients that getting mortgage offers in the summer months may take longer than expected as some banks are generally understaffed and unable to cope. With the French now fully rested and recuperated you can now expect your purchase in France to go through smoothly.

A Place in the Sun | Feature – Low French fixed rate mortgages

With French fixed rate mortgages at an historic lows, French mortgage company Athena Mortgages has launched its lowest-ever fixed rate deals, with 15-year fixed rates from 3.30%, 20-year fixed rates from 3.45%, and 25-year fixed rates from 3.60% – all deals are available at 80 per cent loan-to-value.

Athena Mortgages has witnessed a jump in the volume of enquiries in August from UK buyers looking to take advantage of the cheap fixed rate deals on offer, in order to buy property in France.

The French mortgage specialist also expects rates to fall further in September.

>>Read more

Why is the TEC10 so low?

TEC 10

If tracker mortgages were the flavour of last month then fixed rates will be all the rage in September. Rates for fixed rate French mortgages have fallen significantly in the past year but the recent dramatic drop in the TEC 10 index (explained below) indicates that we should have the lowest fixed rates ever to be offered in France next month. The last time average fixed rates in France were below 3.50% was back in Q4 2005 when the TEC 10 was above 3%. With the TEC 10 now as low as 2.60%, a fall of around 40% in August alone, this could herald fixed rates at levels unseen in decades.

In an environment where French property prices are now stable but with sellers likely to be tempted by fair offers, now really does seem like a unique opportunity to buy a French property, especially with the security that a fixed rate mortgage brings.

The TEC10 is an index used by French banks to set their fixed rates. It is the daily long-term Government bond index, corresponding to the yield-to-maturity of a fictitious 10-year Treasury note. Banks borrow money from the markets based on this index and then provide loans to the borrowers plus the appropriate margin. The TEC 10 rate currently stands at 2.60% which is a historic low. So, what has caused the TEC 10 to fall this low?

The first reason is the outlook for inflation. The markets are predicting sluggish growth over the next five years and perhaps beyond. This means that when the markets look at the price of a 10-year bond, they can set the rates lower if the outlook for inflation is lower. Conversely, in a bull market with high levels of inflation, the rate will have to be higher because otherwise the net yield, once you deduct inflation, would be extremely low and nobody would buy the bonds – consequently the price has to rise.

Which brings us to the second reason. Many investors are seeking safe havens for their money, which means things like 10 year government bonds, corporate bonds from banks, institutional bonds which are all based on the TEC10. As we all know, with supply and demand, when there is a lot of something, the price becomes cheap-and there are a lot of people wanting to buy bonds and the aim of the game is to sell them as cheaply as possible

Euro update 2010

The euro survived the stress-testing of EU banks, ‘proving’ they could survive all that Mammon might throw at them. Despite complaints that the stresses applied to the banks’ balance sheets were no more stressful than a Chinese burn, that issue is officially dead. What the euro cannot dismiss so easily is investors’ ongoing fretfulness about Greece, Club Med and the EU’s security blanket. Slovakia has refused to pay. Spain wants a time-out on its austerity regimen. Ireland’s credit downgrade means it is paying more to borrow money than Greece, whose borrowing it must subsidise through the EU safety net. All is not sweetness and light for the euro.

Since its announcement two months ago Britain’s Austerity Budget has convinced not just the opposition Labour Party but the world at large that government spending cuts will condemn the economy to a decade (a century?) of decline. They are guessing, of course, but that does not make investors any more well-disposed to the pound. It is not just Sun readers who love a disaster; investors are equally as ghoulish.

August was a messy month for currencies, as it often is. At the best of times investors cannot know what will happen next. As we move into September that uncertainty is at a twelve-month high.

French property prices

French mortgages decrease

If tracker mortgages were the flavour of last month then fixed rates will be all the rage in September. Rates for fixed rate French mortgages have fallen significantly in the past year but the recent dramatic drop in the TEC 10 index (explained below) indicates that we should have the lowest fixed rates ever to be offered in France next month. The last time average fixed rates in France were below 3.50% was back in Q4 2005 when the TEC 10 was above 3%. With the TEC 10 now as low as 2.60%, a fall of around 40% in August alone, this could herald fixed rates at levels unseen in decades.

In an environment where French property prices are now stable but with sellers likely to be tempted by fair offers, now really does seem like a unique opportunity to buy a French property, especially with the security that a fixed rate mortgage brings. | French property loans tightening…


Interest from UK buyers in the French property market has boomed this year. Faith Glasgow offers pointers for investors looking to profit from holidaymakers.

Despite economic uncertainty, UK investors are returning to a longstanding favourite haunt – the French property market.

Prices have ‘rebounded’ over the past 12 months, according to French mortgage specialist Athena Mortgages, and interest from UK buyers has been growing since the start of 2010: new enquiries were up 72% during the first quarter of 2010 compared with the fourth quarter of 2009.

>> Read more

Increased diligence and delays

Data out this month suggests that the excellent French property buying conditions will continue well into 2011 and perhaps the next increases in rates will only come in 2014. Tracker mortgages now seem to be the flavour of the month after comments by the ITEM club (Independent Treasury Economic Model) and Jean Claude Trichet, the president of the European central bank, have led to analysts predicting that rate rises seem a way off yet.

Lending for house purchases as a whole was up 3.4% across the Eurozone in June with France doing particularly well according to European Central bank data. The latest report from the FNAIM for June also confirms this for France as French property prices continue to remain stable with an increase of 0.6% in the last 3 months. French banks continue to lend at high levels of loan to value, up to 100% of the purchase price for a second home with some banks also including the purchase taxes in the loan for some property types.

French banks are keen to make the most of the historic interest rates, 1.75% for a 90% LTV tracker is the best we have seen for a second home purchase, but they are also cautious given the unusual economic conditions. What does this mean for your French mortgage application? Increased amounts of explanation required by the French bank and extra paper work required making for a longer application process. The high volume of clients now being scrutinised to a new level means that many banks are struggling to maintain their service levels. Add in the summer vacation season and we have a recipe for frustration, especially for those seeking a loan quickly.

If you are in a hurry to obtain a loan then make sure you gather all of the documentation together quickly and accurately and perhaps write a summary letter outlining your financial situation and how you manage your bank accounts. This will help your broker to quickly get up t speed with the best offers, perhaps running your situation passed a few banks to see which ones can make an offer in the shortest time. Mortgage offers can still be obtained quickly but extra diligence is required pre application to ensure that the application can go through smoothly. A good French mortgage broker is vital to getting the application quickly through the new checks.