French mortgage rates drop to 100-year lows – now ‘€58,000 cheaper’ than in 2014

French mortgage fixed rates have just dropped below 2.0% for the first time in 100 years. The value you can now lock in on a long-term fixed rate repayment mortgage is unprecedented for modern times.

Rates for a 20-year repayment mortgage with a loan-to-value of 80% have crashed to 1.85% fixed for the duration of the loan. This is available to the majority of non-residents buying across France, with some localised rates going even lower. This means that, with a modest rental yield of 3-4%, international buyers can more than cover their interest payments and also pay down some of the capital too.

For British buyers, this dramatic drop in rates offsets the change in exchange rate with today’s GBP/EUR rate only circa 5% below that of two years ago. Mortgage rates have dropped from 3.10% in September 2014 to 1.85% today. This means that the interest payable over a 20 year term has fallen by 42% in the same period.

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On an average loan of €400,000 current buyers are saving just over €39,000 in interest payments over the course of a 20 year fixed rate mortgage on a loan-to-value of 80%, which is roughly €10,000 per every €100,000 borrowed. People who were previously buying in cash are now using finance to manage the loss in currency values, hedging against future exchange rate movement.

On the whole, these rates are underpinning British demand in France, especially in key locations like the Alps and Paris. For buyers using USD, the French market is currently even more attractive, with the perfect combination of ultra low interest rates and a very favourable currency creating incredible buying conditions. Staple areas like Paris and the big towns along France’s south coast are being targeted heavily by those buying with the dollar.


How well off are the French in real estate terms?

Compared to their european neighbours, the French devote amongst the lowest amount towards real estate, largely due to the benefits of low French mortgage rates.

A study by the Credit Foncier examined the respective weight real estate has in the budget of European households and reviewed various aspects of national markets.

Month to month, the French devote just 18.3% of income towards property, against a third for the Dutch and Germans, and a quarter for the British. Only the Italians spend less than the French in real estate expenditure.

Why is this the case? These differences are largely explained by the proportion of tenants in the private sector and also the number of owners who have not yet paid off their loans. These two categories of people are those who spend the most on housing and in France and Italy these are few in number compared to elsewhere in Europe.

In Italy, more than half of the population are outright homeowners with nothing to repay, thus explaining why Italians spend the least on housing. This high proportion is linked to a very strong culture of ownership, particularly in the South, and the fact that many become owners through family inheritance and bequeathment.

In France, 10% of the population has finished paying their mortgages. In addition, 15% of the population receives subsidized rent via social housing (against 10% in the EU), which explains why the French spend on average rather less than their neighbours.


Airbnb, Abritel … how to legally rent your French property to tourists

Tourist rentals in France can form a considerable part of a property’s income and increasingly this type of activity is becoming less amateur.

To avoid unpleasant surprises and fines here’s what you need to know.

Renting your main residence

Only a really option for those who have made France their main home, this is the simplest way of renting your French property because renting a main residence is always legal and is possible without any formalities. A ‘principal residence’ is a residence that is habited for at least eight months of the year by its occupant or a spouse or a dependent. It is therefore perfectly conceivable to rent its main residence throughout the summer or even every weekend of the year but must not exceed four months of rentals per year.

Renting your second home

Things get tougher when you rent your second home or a home that was bought specifically for secondary purposes. First, the formalities: make a declaration of your intentions (using form Cerfa No. 14004 * 02). This document serves to identify you as someone who pays the tourist tax, which is paid by the tenants (the tax you’ll remember paying when leaving a French hotel). Undeclared residences face a fine of up to €450.

Things can be a bit more complicated in certain cities: communes with more than 200,000 inhabitants, those in inner Paris and those with more than 50,000 habitants in ‘tense zones’. Here, it is necessary to gain authorization from the local municipality to modify the recorded use of the accommodation in furnished houses to become loosely a ‘commercial’ entity. It can be hard to gain this authorisation, which is why some are moving directly towards the purchase of habitable commercial surfaces.

Renting a ‘commercial’ space

To avoid the constant worry about being found out by the authorities, some real estate agencies refer investors to homes regarded as commercial spaces. There are not many but these spaces prove perfectly habitable without too much work. And if they are well located, they lend themselves well to the tourist market without the legal woes.

If I am renting myself

Risky but not impossible. If a tenant wishes to sub-let his house whilst he’s not there, a tenant must inform his owner and obtain his written consent.


Good signs – French construction market regaining strength

In just one year, the number of new-build properties sold jumped 18.7% (June-June) in France signifying a nine year high for the French construction market.

France’s Ministry of Environment has published some compelling figures on the sale of new-build properties in France confirming the newfound health in the property market.

Just over 33,000 units were sold in the second quarter, a jump of 18.7% compared to a year ago. At the same time, the number of homes for sale has increased by 24.2% to 35,900 units, its highest since 2007.

Broken down by property type, the increase in sales totaled 18.1% for apartments (30,300 units) and 26.8% for detached houses (2,800 units). It’s worth noting that whilst sales have increased, the volume of stock has remained the same, unchanged at 92,600 with the increase in sales significantly reducing the reduced the available supply.

This will no doubt continue the creeping trend of rising house prices, a relatively new thing for the French property. Selling prices, meanwhile, have changed little over the year, up 0.3% to an average of €3,930 per square meter.


June 2016 – French Mortgage Transaction of the Month

USD buyer utilises double benefit of mortgage & currency rates

A late entry for June’s transaction of the month. Strictly speaking, this is still a pending transaction but we had to showcase it simply due to the huge value in the numbers.

Our client, based in the UAE (where the Dirham is pegged to the dollar) had his buying power boosted by 4% on the euro overnight after the referendum. Even before the Brexit referendum announcement, USD had become over 22% stronger on the euro since this time in 2014.

Whilst fixed rates for non-residents across the board are now down to around 2.15%, if the property is in Paris it is possible to negotiate even lower rates. French banks often feel more secure about lending on real estate that is located in markets that have strong domestic and international appeal. Paris is at the top of this list, closely followed by large resorts in the French Alps, where tourism underpins the market.

We are negotiating a rate for him of 1.55% fixed for 20 years with a loan to value rate of 80%. The loan value is around €600,000 and his ability to move quick on both the currency and mortgage rates is going to secure him huge amounts of value over both the short and long term.

For those looking at buying property in Paris, these preferential rates are dependent on the buying profile. Generally as a couple, gross income needs to be in the region of €100,000, with a single applicant requiring €70,000 income before outgoings. Working for a large internationally-known corporation is also prerequisite.


Greater Paris leads the way for new property construction

New home construction rose 3.8% to 86,200, the period from March to May, compared with a year earlier, according to the latest figures from France’s Department of Housing.

Permits for new buildings surged 12.1% year on year, to 99,600, over the same three months, the ministry said in a statement. Broken down by type of construction, new construction on houses rose 2.6% to 80,200 units.

Building permits double in Corsica

By region, it is in Ile-de-France (Paris’ ‘Greater London’ equivalent) that new housing construction posted the strongest figures. Here new home construction was up 26.1% on the 12 months ending in late May, to 67,800 units.

The next biggest increase was in Corsica (+ 21.6%, 3,700), with the Loire area also posting a big increase (+8.6% to 22,800). In contrast, other regions have slowed – the Nord-Pas-de-Calais and Picardy (-15.6%), Alsace-Lorraine-Champagne-Ardenne (-6.9%) and Normandy (-5.3%).

Nearly 385,000 homes are expected to be built in 2016 across France, representing an increase of 10% in the new housing market. Industry figures put this largely down to the incredibly low interest rates still and state support measures for certain domestic buyer demographics.


Price negotiations – easier in the country, harder in the city

After months of decline, followed by a period of stability, the margin for price negotiations has now balanced out in France at 4.5%, according to the latest figures from the Orpi network.

This indicated that both buyers and sellers have adopted more neutral views on the asking prices of their properties. Previously, there were big gaps between the asking price and the selling price for resale properties across the country.

Prices in rural France can still pushed relatively hard by buyers. The figures show extremes of 11.5% in Boulogne-sur-Mer, a difference of 11.5% between the asking prices and the selling price. The same trend was seen in Canet-en-Roussillon – a 10.6% difference.

But in France’s big cities, the gap remains very low, with a maximum of 5.06% in Nice. In Paris, the difference stands at 2.69% on average, a mere 10,000 euros, on average, between the asking prices and the selling price.

It was at Lyon that negotiations seem to be the hardest. The trading margin here is 2%.


The Monaco circuit would be worth 3 billion if it were habitable

Widely regarded as the grandest prize in the Formula one, the Monaco Grand Prix does much to elevate the stature of this tiny independent microstate. But it’s not as if everyone didn’t know of Monaco already. Its belle epoque casino, ornate opera house and plethora of hotels boutiques, nightclubs and fine restaurants make this the playground for the ultra wealthy.

Real estate is priced with this wealthy audience in mind. A new study by the Savills international network show that the Monaco Grand Prix circuit would be worth €3bn if its surface was converted into living space.

According to calculations by Savills, this princely sum is achieved due to the length of the course (3337 meters) and the fact that is runs through the heart of Monte Carlo and La Condemns, which are among the most desirable areas.

The figures show that a good quality apartment of two bedrooms near the circuit is would cost €8.5 million, nine times more expensive than in Singapore, another town hosting a Grand automotive price and one that is not known for its low prices either.

Whilst these heady figures are sometimes hard to fathom, by looking at the price per square metre you can really see the extraordinary levels that prices ascend to here.

One square meter of ultra-luxury real estate in Monaco costs an eye-watering €90,900. At these altitudes, only Hong Kong is higher with an untouchable €109,800 per square metre. On average though, prices for ‘just’ prime property in Monaco cost €36,000 per square metre.


May 2016 – French Mortgage Transaction of the Month

Cash buyers use finance to optimise tax & repayment structures

With French mortgage rates so low, even those with enough cash to be able to buy outright are using finance to purchase their properties.

This month’s French mortgage transaction of the month is on a large apartment in the Three Valleys ski region. The clients opted for an interest only route on a loan amount of €800,000 for two reasons. Firstly they wanted to keep her net assets in France down. They were planning other investments in the country in the future and this would mean the €1.3m net asset level where French wealth tax would kick in would be reached fairly soon.

The second reason was to keep the monthly costs down to a minimum. On a repayment basis the monthly amount would have been around €6,000, compared to around €2,000 per month under an interest only structure.

This interest only mortgage was also divided in two, one half on a fixed rate the other on a variable. Whilst a fixed rate gave them security over their payments in the long term, they wanted to have the option to repay parts of the capital early, which under a fixed product means extra fees. They therefore took 50% of the mortgage under a variable product. Whilst there is less security over the rate long term, this allows for early repayments.


May 2016 – French Mortgage Transaction of the Month

Cash buyers use finance to optimise tax & repayment structures

With French mortgage rates so low, even those with enough cash to be able to buy outright are using finance to purchase their properties.

May’s French mortgage transaction of the month is on a large apartment in the Three Valleys ski region. The clients opted for an interest only route on a loan amount of €800,000 for two reasons. Firstly they wanted to keep their net assets in France down to a minimum. They were planning other investments in the country in the future and this would mean the €1.3m net asset level where French wealth tax would kick in would be reached fairly soon without careful planning.

The second reason was to keep the monthly costs down. On a repayment basis the monthly amount would have been around €6,000, compared to around €2,0000 per month under an interest only structure.

This interest only mortgage was also divided in two, one half on a fixed rate the other on a variable rate. Whilst a fixed rate gave them security over their payments in the long term, they wanted to have the option to repay parts of the capital early, which under a fixed product means extra fees. They therefore took 50% of the mortgage under a variable product. Whilst there is less security over the rate long term, this allows for early repayments.


Sales volumes and prices increase in France

For the first time since early 2012, the price of resale properties in France has risen. Meanwhile, the volume of transactions is increasing.

It is only a 0.5% increase but it is the first since the beginning of 2012. According to the index of the French Notaries & INSEE the price of ‘existing homes’ shows its first annual increase for more 4 years.

The increase is solely to due to that of houses (as opposed to apartments), whose prices appreciated 1.1% in the first quarter of 2016 year on year.

In Ile-de-France, the prices of existing homes had “recovered somewhat ” after a continuous period of decline since mid-2012, says the Chamber of Notaries of Paris-Ile-de-France. They rose by 0.2% from January to March 2016, year on year, after falling 0.9% in the fourth quarter and 1.6% in the third quarter.

810,000 sales in one year

Transaction volumes have continued to increase, with 810,000 sales recorded in France in the last 12 months to end-March, according to figures compiled by the notaries. Compared to the same period a year earlier, these volumes were up 17.2%, almost reaching the peak in 2012.


French parking spaces are becoming favoured by real estate investors

Escaping the constraints of the Alur law and in particular the harsh regulation of rents, this investment can provide a good return, provided you buy in the right place.

The heart of the eighteenth, nineteenth and twentieth districts of Paris parking spaces acquired for €25,000 allow the owner to collect a monthly rent of €110, representing a yield of 5% per year.

According notaries of Paris, the median price of a car parking space in Paris rose last year to €24,000 in the capital, €15,000 in the inner suburbs and €10,500 in the outer suburbs. In this niche market, the number of sales in the former in the Paris region is around 10,000 properties per year.

In Paris and in the provinces, the tram network, car-sharing schemes and presence of paid or free public parking can fluctuate the rental demand for privately owned parking spaces.

Even in the centre of the regional capitals, purchase prices and rents can flirt with those of Paris. Prices of €20,000 and €30,000 are often achieved in the seventh and nineteenth districts of Lyon, in the sixth and seventh arrondissements of Marseille and in the Saint-Michel district of Bordeaux.

With this specific type of real estate there is also a new strategy to due diligence. Once the right location has been chosen, you must ensure the ramp accessibility is of an appropriate gradient. Other tips include looking for lots with two side by side spaces, which are better than two in a row. Make sure the dimensions are good enough too: the ideal configuration being 2.5-3m wide by 5m in length. Beware of buildings from the 1980s that have very narrow spaces.


French Mortgage Watch April 2016

french private finance

French mortgage rates dive to new historic lows

This month mortgage rates in France have dropped to new historic lows offering increased long-term value.

Mortgage interest rates in France have now reached unprecedented levels, so much so that non-residents with good profiles can now access 20 year fixed rate mortgages from as little as 2.25%.

In terms of savings, compared to May 2014 when French 20-year fixed rate repayment mortgages were at 3.70%, rates have today decreased by 36%. In money terms, the total interest payable on a loan of €300,000 over 20 years has dropped from €117,571 to €72,822 a saving of €44,749, or €3,729 a year.

MW April Infographic
Each €100,000 borrowed currently costs €436 per month over 25 years, €518 per month over 20 years and €655 per month over 15 years. There has never been so much long term value in the French market which is why high-end buyers are returning in force.

 

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JOHN LUKE BUSBY
Private Clients Director

Why have rates dropped?

Mortgage rates in France reached their previous lows in early 2015, dropping to rates of 2.55% fixed for 20 years. Since then, after a small rate rise last summer, which caused international and domestic buyers to rush to the market to secure the best rate possible, the 3-month Euribor (Euro Interbank Offered Rate) has dropped further into negative territory, passing below -0.24% for the first time for over half a century. This is largely as a result of the European Central Banks decision to cut their base rate to 0.0% in March this year.

The Euribor is used by the vast majority of French banks as their reference index with a margin added on top to create mortgage rates. Current margins are in the region of 2% over the 3 month Euribor (which is now effectively at 0). The changes in the ECB rate generally drive changes to the Euribor.

Those with very good profiles who are buying in popular areas may also have the ability to access even better rates. In locations such as Paris or big resorts in the Alps it is even possible to access 20-year fixed repayment rates below 2.0% providing you can wait as the process can be slow.

French Mortgage Best Buys
Repayment
RateDurationLTVDescription
1.90%20 years80%Tracker mortgage 3m euribor +1.9%
2.25%15 years80%Rate fixed for the term
2.45%20 years80%Rate fixed for the term
2.65%25 years80%Rate capped + 1.5% for 10 years
2.75%20 years80%Rate fixed for the term
3.15%25 years85%Rate fixed for the term
Interest Only
2.75%14 years75%Tracker 3 month euribor +3.00%
2.80%25 years75%Variable tracker with cap at 4.30% fo 10 years
3.30%14 years75%Fixed rate

France in the Press

 Tourism to France increased in 2015 despite Paris terror attacks
The overall number of tourists visiting France in 2015 rose compared with the year before to reach an all-time high despite the two deadly attacks in Paris in January and November.
 Why Eurozone assets, not UK, are at biggest risk in a Brexit vote
New data highlights the most popular destinations booked by luxury travellers visiting France on a luxury budget.
 Holiday homes in the Alps: wake up in France and ski to Italy for lunch
The Evening Standard’s overseas property editor Cathy Hawker gives her opinion on a French resort with enough skiing to challenge the biggest resorts, but with much lower property prices.

 

French mortgage transaction of the month

Hedging against currency movements

Foreign expats living and working in the UK are also making the most of the current market in France, as is shown by this month’s transaction of the month.

The euro’s movement against both the pound and the dollar over the past few months has led many French property to utilise the long term rates as a hedge against further currency movements.

Whilst one of our current clients – who is buying an €800,000 apartment in Courchevel – has enough cash to finance the purchase outright, he does not want all the cash to be exposed to currency fluctuations. He chose a long term fixed rate mortgage on a term of 15 years for 75% of the property value thereby only exposing 25% to currency fluctuations.

From the blog

Rents in France rising for Euro 2016

Rental prices during the forthcoming Euro 2016 football competition are on the up across France. A study by the UFC-Que Choisir revealed that hoteliers have upped room rates by 80% during the competition.

Read more
First €5,000 fine for an illegal Paris sublet on Airbnb

For the first time a Parisian tenant who sublet their home over the Internet without permission of the owner has been sentenced by the Paris courts

Read more

Fixed repayment rates in France now available below 2.0%

For buyers with very good profiles buying in locations like Paris or big resorts in the Alps it is now possible to access 20-yr fixed rates below 2.0%.

Read more

 

Rate and indices

European Bank Base Rate and Euribor
The 3-month Euribor continues to drop, passing the -2.50% mark for the first time in over 50 years.  The vast majority of all French mortgages use the 3-month Euribor as their reference index with a margin added on top. Current margins are in the region of 2% over the 3 month Euribor.

mortgage rates in france

Fixed rate mortgages: The TEC 10 index

The Tec 10 has rebounded a little in the last few days, after sliding to its lowest point for over a year in March. The TEC 10 index in France gives an indication of how much the French government is charged to borrow money on a 10-year basis. In this way it is also an indicator of economic confidence and the perceived outlook for growth. Movements in the TEC 10 often produce changes in the available fixed rate mortgages in France. These changes are not instant and usually take a few weeks to come into effect.

french mortgage rates

Currency Rates vs Euro

Whilst the soap opera that is the Greek economy and its involvement in the single currency is giving most a dull headache, day-to-day investors continue to capitalise on the market as it is. More positive growth for the UK, expanding by 0.7% in Q2 gave further fuel to the fire, enabling sterling to scratch out some of the gains the euro made after the noise of agreement over the last few weeks. For the USD, it looks as though 2 rate rises are on the cards this year, with the first coming in September.

Currency

1 GBP€1.29
1 USD€0.88
1 AUD€0.67

French-Private-Finance-World-First


Rents in France rising for Euro 2016

Rental prices during the forthcoming Euro 2016 football competition are on the up across France. A study by the UFC-Que Choisir revealed that hoteliers have upped room rates by 80% during the competition.

It’s the same for house and apartment rentals too. A separate study by  seasonal rental company Likibu.com show that owners on Airbnb, HomeAway, Booking.com and their other competitors have increased their rental prices by an average of 54% in the cities hosting Euro 2016.

Yet it’s not in France’s capital that rates have soared the most. Figures from Likibu.com show that Lille has seen the biggest jump of 71% with Toulouse (+ 60%), Lyon (+ 53%) and Bordeaux (+ 52%) all taking their fair share.

Paris’ private rentals remain tempered (+ 12%) as well as Saint-Denis, near the Stade de France (+ 31%). But capital is expensive all year round and supply is plentiful, so no surprise here.

Demand outstrips supply

And if the rental price increases are remarkable, the increase in demand even more so. is particularly strong. Likibu figures highlight an occupancy rate of 88% so far for Euro 2016. On average that’s 10% higher than for equivalent periods outside of the competition. Demand in Bordeaux and Lyon has also jump massively, with their respective occupancy rates jumping from 73% to 90% and 72% to 90%.


Fixed repayment rates in France now available below 2.0%

Mortgage rates in France have just dropped to new all time lows – lows not seen since before World War Two.

Non resident buyers with good profiles can now access 20 year fixed rate mortgages from as little as 2.25% (fixed for the duration at 80% LTV).

For buyers with very good profiles buying in locations like Paris or big resorts in the Alps it is even possible to access 20-yr fixed rates below 2.0%.

Most non-resident clients with average profiles can expect to access rates of 2.45%.

To find our exactly what rate you can access, request a free decision in principle today.