Details on the purchase of a classic French “Maison de caractère”

Buy of the month Purchase of a classic French <<Maison de caractère>>.

Emily, from London, fell in love with a presbytery renovation project in the middle of France in an area she knows well with a purchase price of €85,000.

Emily chose a 25 year fixed rate at 4.35% through Athena Mortgages for this her first ever purchase, putting down €25,000 to cover deposit of €17,000, purchase taxes of €6,400 and fees of €1,600.

Her monthly payments for the mortgage €69,840 are €388 with life assurance payments of €17.

Long term fixed rates like this are common in France. It is important to note that there are always early repayment penalties for fixed rates which are usually half the interest rate on any sum you pay off early.

Conflicting messages in the French mortgage market. Have we reached the bottom?

This month has seen some banks raising margins for non resident French mortgages, whilst others have lowered their rates, indicating some uncertainty in the short term. By comparison, in the resident market for mortgages in France, rates are still falling for both fixed and variable rate mortgages indicating competition for borrowers as the European central bank rate has not changed for many months. Stability is returning to the French housing market, with the average property prices up 0.6% in February, apartments up 1.4% and houses stable at -0.2% according to the FNAIM. What seems clear is that with any improvement in economic sentiment in the EU, French mortgage rates will begin to climb.


Changes to the rules for French life assurance

Many international buyers of French property are surprised to find that life assurance is compulsory for all French mortgages. Even more surprising is that the majority of French banks only allow applicants to use the life assurance recommended by the bank. However, this seems set to change with the Lagarde Reform which is currently going through the French legislative process. The main provision of this project lies in Article 17 which amends Article L. 312-9 of the Consumer Code as follows: “A lender may not refuse to secure another loan insurance contract when the contract has a level of security equivalent to the insurance contract that offers”. Other amendments are also being proposed to strengthen consumer rights in this regard and the changes are expected to come into force on the 12th May 2010. This shake up should bring in more competition which is long overdue within the market with some insurance brokers saying that insurances costs may go down by over 50%. Typical insurance costs for a French mortgage are €30 per month per €100,000 borrowed.

Capped payment mortgages for investors

Since the beginning of the year we have had a large volume of investors buying leaseback properties all over France. Whilst interest only products for these sorts of purchases have been popular in the past, many investors are now choosing repayment products for their leaseback properties as current rates are so low.

One of the attractions of taking out a French repayment mortgage is that the monthly payments on these mortgages are usually capped in some way, giving security. Whilst 25 year fixed rates are available at about 4.5%, variable rates are 2.4% for this duration, making the headline numbers for investments with 4% yield look very manageable.

For example one of our partners has a leaseback with a household name management company where a 5% deposit will get you a property of €300,000 on a repayment basis over 30 years with a monthly payment after rental income is taken into consideration of less that €100 per month. This payment will remain more or less fixed as both the rental income and the monthly payment increase by the rate of inflation.

If you put your deposit and €100 into a savings account you would need an average rate of return in excess of 10% per year to get close to the a rate of growth in the value of the property at 2.5%. Interesting eh?

Athena Mortgages will keep you up to date

This is the first monthly newsletter from Athena mortgages which is in direct response to the number of people requesting to be added to our mailing list on our website. In this newsletter we will keep you up to date on the factors affecting the French mortgage market for international investors, as well as information on products and interesting case studies. We hope you find this synopsis of key information useful and if you have any requests for information you would like to see here on a regular basis, please let us know.


Rates move up due to EU economy fears

Average rates seem to be trending upwards as it seems less likely the ECB will raise the base rate. Banks are looking for other ways to boost their coffers, so are raising margins to enable them to offer higher interest rates. The news from the savage cuts to public spending required in Greece, Spain, Portugal, Ireland and the UK will mean lower inflation for the medium term. We have locked in some rates for offers published in the next 2 months but clients have to move quickly to provide complete applications to stand a chance of getting the rates and conditions.