March 2017 – French Mortgage Transaction of the Month

Whilst the average duration of a French mortgage taken by a non-resident is 20 years, often clients end up choosing to gear their mortgage in France towards a longer term product to ease the process of buying another property in France.

In this month’s French mortgage transaction of the month, the client, a 48 year old buying a €640,000 ski apartment in Courchevel opted for a fixed rate repayment mortgage to be spread over 25 years at a rate of 2.45%. Over a duration of this length the maximum loan-to-value rate is 80%, therefore requiring a 20% deposit.

Most of the time clients utilising French mortgage products with durations longer than 20 years are asked to do so to improve their affordability calculations (increasing the duration spreads out the mortgage repayments, thus reducing them, in turn for a slightly higher rate).

However, with rates being so low across the board, especially compared to those available elsewhere in Europe (particularly in the UK) occasionally clients opt for longer terms regardless of the slightly higher rate. Why? Sometimes it’s in order to maintain a preferred level of disposable income, but mostly it’s with a longer game plan in mind.

By taking a longer term and therefore having lower monthly payments, the affordability profile is better than it would be on a mortgage with a shorter duration, thus substantially increasing the chances of being granted additional lending on another property investment.

In real terms, per €100,000 borrowed, the monthly cost of a 25 year fixed rate repayment mortgage (at 2.45%) is around €446, compared to the 20 year fixe rate repayment mortgage (at 2.15%) monthly cost of €513, a difference of €67 per month per €100,000 borrowed. Using the Courchevel example above, the property of €640,000 had a loan of €512,000 (at 80% LTV), which equated to a monthly payment difference of around €343 between the two products, or just over €4,100 a year.

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.


Have property prices reached a record high in your city?

While Paris is approaching the threshold of €9,000 per square meter on average, 6 of the top 10 French cities are at the top according to the figures of MeilleursAgents.

How far and until when? After a very dynamic 2016, the real estate market is literally buzzing with prices continuing to rise strongly at the beginning of the year (+ 5.2% in Paris at the end of March over one year and + 2.3% in Guy Hoquet agency). “This year 2017 does not really look like the others,” says Fabrice Abraham, general manager of the Guy Hoquet network. We have not experienced the traditional winter downturn or the impact of electoral deadlines, which generally lead to a wait-and-see attitude. “The network also notes that this dynamism (+ 15.4% sales in one year) is driven by a return of first-time buyers and, to a lesser extent, investors who had fled the market. But these are “net” buyers who do not resell anything. Result: the imbalance between supply and demand increases and prices with it.

A situation that allows the Century 21 network, the cousin of the previous one (both owned by Nexity) to set an absolute record price in Paris at €8,743 per square meter, up 5.1% from 12 months age, and even to foresee the crossing of the threshold of €9,000. Without specifying the deadline. For its part, Guy Hoquet recorded an annual increase of 5.4% in Lyon, 5% in Bordeaux, 4.3% in Nantes or 2.9% in Reims, and more reasonably 2.1% in Marseille and 2% in Toulouse. This hasn’t prevented some places from falling, such as Valence (-6%) or Perpignan (-2.1%) and Grenoble (-1.7%).


Property stability: the election deadline isn’t slowing down the market … for now

Despite the sharp rise in prices, particularly in Paris, the volume of transactions has remained stable as the presidential election approaches.

Typically, the real estate market in the past has been rather sluggish when approaching an election deadline – this is not the case in 2017. This is the observation made by two of the French real estate networks of the Nexity Group, Century 21 (with 850 real estate agencies in France) and Guy Hoquet (with 450 branches), which recorded, in January and March, over a year, respective increases of 20% and 15.4% of their trading volumes.

This increase in activity in terms of sales was particularly notable in Paris (+ 17%), but also in the provinces (+ 15.5%). The French continue to benefit largely from low credit rates, despite their slight recovery at the beginning of the year. The historically high credit volumes that have been granted to them over the past few months confirm this.

“Contrary to what has been observed in the past, the presidential deadlines have not blocked the French real estate projects, indicating that they expect only the best in terms of real estate taxation in the future,” comments Fabrice Abraham, general manager of the network. It is true that the abolition of the housing tax for 80% of the French, wanted by some candidates in the presidential election, can appear to be good news for the French. Conversely, that of Emmanuel Macron to make the ISF a “real estate tax” does not encourage future owners. An evolution of transfer taxes has also been mentioned but it currently remains unclear.


French property price rises accelerate

The trend of rising French property prices is now real. In the last quarter of 2016 prices rose by 1.8% for the whole of France, after 1.3% in the third quarter and 0.6% in the second, according to INSEE figures.

The reason? Prices have risen again because ‘households’ have started buying again, which means the French property market remained very dynamic throughout the whole of 2016 and that was after a relatively good year for 2015 too.

The slight upturn in French mortgage interest rates towards then end of 2016, as well as the increasing property prices, prompted undecided French domestic buyers to take action, with the uncertainty of the presidential election shifting into the background.

Are sales back to pre-crisis levels?

Last year, sales volumes reached and even surpassed their record levels of May 2006, with nearly 850,000 properties sold. This record can of course be tempered slightly, as that was 10 years ago, with the population also increasing as well as housing stock, which has gone up by 1% per year on average. This means that it would have been necessary for the sales volumes to exceed 900,000 to really exceed the record of 2006. Nevertheless, 2016 was a good year.

Price increases were largely driven by the Ile-de-France region (+ 3.1% over one year), and particularly central Paris (+4.4%). Outside of Ile-de-France, prices rose more moderately, by 1.3% over one year.

In the Paris region the French Notaires recognised “the renewed fluidity of the market and sales growth of 8% in resale properties and 10% in the new homes market.” Over the next few months, the French notaires expect prices to continue to rise at the same rate, reaching 3.7% in April.


February 2017 – French Mortgage Transaction of the Month

This month’s French mortgage transaction of the month highlights the renewed trend of international clients taking mixed French mortgages; half repayment, half interest only, instead of simply repayment only.

Mixed French mortgages are a clever way of reducing the amount of interest you pay overall by structuring your mortgage in a way that enables early repayments without paying the sometimes-costly early repayment fees that are associated with long term fixed rate repayment mortgages.

Interest only French mortgages often allow for early repayments without penalty fees, so by taking half of the overall lending on an interest only product over 14 years, the buyer has a large chunk of the lending which can be paid off early.

It was this structure that a client opted for recently for an €800,000 three bedroom apartment in the Portes du Soleil, in a resort that’s very popular with the British.

In addition to having the ability to pay some of the mortgage off early, the client also preferred that the overall monthly repayments would be lower, due to the lower monthly payments on the interest only part of the mortgage.

This trend is often an indication of positivity in the financial circuits, with those opting for a mixed mortgage often expecting a windfall from bonuses. Though we often see buyers selling an existing property elsewhere to facilitate this.

To see if a mixed French mortgage could work for you, please feel free to get in touch with one of our French mortgage experts today.


New-build property: France’s new-home market shows great form

New figures for France’s new-build property market demonstrate renewed confidence in this sector, with sales jumping by 23% in December compared to the same month in 2015.

After the slow year of 2014 the new-build French property market, often the yardstick for consumer confidence in the property market as a whole, these figures are reassuring. Year on year, 2016’s sales rose 19.5%, compared to +13.7% in 2015.

Looking at the numbers on a quarterly basis sees them rise even higher, with Q4 seeing a 28.4% jump compared to the same quarter the previous year.

Domestic market supports growth, underpinned by secure incentives

Patrick Vandromme, the President of LCA-FFB, the French housebuilding federation put it down to the alignment of ‘planets of the property sector’. “We are benefiting from an alignment of the planets: between the low rates, the success of the zero-rate loan [which worked very well for the domestic first time buyer market], the Pinel tax exemption system and recovering household morale.”

Positive outlook for 2017

2017 is expected to continue in this fashion, with sales supported by still low, though slightly higher, French mortgage rates. Next year, 2018, is a worry for some if interest rates continue to rise and also domestically, if the government were to cut down on current housing subsidies.


France’s online property rental market explodes in 2016

Such is the advent of property rental market technology and services, it has never been easier for home-owners in France to rent out their property to the international and domestic markets.

With so many now renting their property through easy-to-use accommodation sharing websites, the French authorities are now starting provide official figures for this increasingly important part of the tourism sector.

According to a study carried out by INSEE, the French office of national statistics and rental unions across France, the ‘online property rental market’ would have represented 25.5 million overnight stays in 2016 (including airbnb).

This figure, taken from the statistics provided by the websites that just link homeowners and tenants (Abritel, Leboncoin, Homelidays, Airbnb, etc), demonstrates a 30% rise in one year. This represents 16% of the total accommodation market.

The onset of this market is no surprise and is the core reason why many hoteliers and certain municipalities, especially those in Paris, have been trying to curb the phenomenon.

The French go digital – they continue to holiday in France

There were findings from the study that did raise an eyebrow though. It showed that these high numbers of tourist rentals were being taken up by French (66%) rather than foreigners clientele and that 80% of the number of visitors would come from dwellings located in provinces other than Greater Paris.


Low French mortgages rates boosted new-build property construction in 2016

The new home construction industry in France had an amazing 2016. Around 376,500 new homes were built last year, 10.4% more than in 2015, according to figures released this Friday by France’s Ministry of Housing.

Building permits granted for new homes jumped by 14.2% in 2016, to 453,200 units. Both sets of figures were obviously welcomed by Housing Minister Emmanuelle Cosse.

Exceptional borrowing conditions for both domestic and foreign purchasers had a lot to do with this. In France mortgage rates, including those secured for domestic buyers,  stood at 1.34% on average in December, according to the Crédit Logement / CSA observatory.

These conditions allowed an increasing number of households to secure better rates and pay of large chunks of their remaining mortgage amounts. As a result property loans experienced a “strong rebound” with the number of secured new loans reaching a new record.

To calculate what you could afford to borrow in France, get in touch with one of our expert brokers today.


Rental: agency fees down sharply in the Paris region

Good news for the liquidity of the Parisian rental market; the cost of agency fees paid by tenants for new lets has dropped markedly. For a one bed apartment of 40 m², the tenant is now not allowed to pay more than €600 of agency fees compared to €1,000 euros previously.

For over two years, rental agencies in Paris have been obliged to cap the rental fees received upon the closing of a new lease.

Whilst this is obviously bad news for some in the industry, the reform – which follows the Alur law (Act for access to housing and renovated town planning) – aims to reduce the cost of entry into the housing for those using a real estate agency.

It is therefore hoped that this will increase liquidity in the market, therefore helping both the tenants and prospective landlords who have been stifled somewhat by rental rate caps themselves.


January 2017 – French Mortgage Transaction of the Month

Going against the grain of the seasons, this month’s French mortgage transaction of the month takes us away from the wintery alps, to the warmer climes of Dubai and Cannes.

This was the third purchase in the last year by our client, who is based in Dubai and has moved quickly to secure rates whilst they’re at their lowest.

Unlike the first two properties, which were in the Three Valleys ski resort of Méribel, this one was in sunny Cannes at a price of €1.8m with a 60% LTV securing a loan of €1.08m. This was over a 25 year fixed period on a repayment basis, with a rate of 2.45%.

We often speak to clients based in the Middle East who’ve had trouble accessing French property finance as banks sometimes feel less secure about lending to someone far away.

There’s a simple solution though – investing through an SARL. An SARL or Société à Responsibilité Limitée, is a limited liability company, particularly suited to small/medium family-run businesses. By starting an SARL you are creating an official company registered in the French tax system, which at the most basic level simply means that when a Bank sends you correspondence, they have an official address, not a personal one, that they can know 100% that correspondence will be delivered to. It is then the business owners responsibility to make sure they pick up their mail.

With this of course there is also the normal full due diligence carried out through the full application process.

For further information on buying French property through an SARL or French mortgages in general, please get in touch.


Paris remains one of the five favourite cities of the ultra wealthy

What is an UHNWI? Men and women whose financial wealth exceeds $30 million have their very own acronym. UHNWI, the Ultra High Net Worth Individuals of the world have doubled in numbers (212,000 across the world) over the last twenty years. It’s the ‘U’ that makes all the difference, since HNWIs, the High Net Worth Individuals, “only” now have a million dollars and above.

According to a recent report by Wealth-X research, the UHNWIs prefer to target five particular places around the world.

Despite Brexit, London tops the list, closely followed by New York, both where luxury apartments prices have fallen for several months. Next comes Tokyo, then Sydney where the Chinese are now active investors. Paris finishes this top 5 and here prices can still be half as much as in London, with prices up sharply in recent months.

  1. LONDON – The British capital remains at the top for the ultra-rich despite Brexit. London still attracts people through its cultural wealth, luxury brands, its education, easy mobility, limited risk of investment and its economic makeup.
  2. NEW YORK – The big apple boasts the biggest concentration of UHNWI’s fortunes. Owning a property in Manhattan or even on Central Park remains their most common dream.
  3. TOKYO – The most important economic metropolis in the world is attractive due to its concentration of luxury brands and high-level dining. It will also host the 2020 Olympics.
  4. SYDNEY – Teaching excellence, economic and financial dynamism, audacious architecture: these are just some of the assets of the Australian metropolis.
  5. PARIS – The quality/price ratio remains excellent for big budget buyers and here they can enjoy one of the most visited capitals in the world, endowed with incredible architectural heritage.

 


French property transactions back to 2006 levels, prices on the rise

Real estate prices are rising in France. In the third quarter they were up across the country for the third time, but this time more sharply. Properties went for 1.7% more on average than in the 2nd quarter (after + 0.6% in the previous quarter) representing a resurgent and dynamic market.

This price rise has been encouraged by historically low mortgage rates, encouraging a growing number of households to go ahead with purchases now whilst the rates are down low.

Notaries registered 838,000 transactions for the year to end September, against 755,000 a year earlier, a sales volume that exceeds the historic high levels of 2006 and early 2012.

The notaries have confirmed that this recovery began in spring 2015. “This improvement is corollary to higher prices,” they noted.

This trend is particularly pronounced in Paris , which is often a precursor to the growth of prices across wider France. In the capital, transaction volumes have also reached high levels, comparable to the boom years of 1999-2006.

These are 10,000 sales that were made between July and September, 11% more than the previous quarter.


November 2016 – French Mortgage Transaction of the Month

If USD buyers are currently enjoying unprecedented buying conditions in France, then for Sterling things have tempered, mainly due to the weakening of the pound.

However some buyers are still pushing ahead, citing the fluidity of the market as the main impulse for buying. One recent purchaser who has just reserved a three bedroom apartment in Châtel in the French Alps knew that even though the currency rate isn’t on his side, it made sense to move ahead quickly.

“The pound might be down, but for buyers in euros that doesn’t matter,” said Mr Jackson, of Aintree, UK. “The French and Dutch are still buying, as are the rest of the Europeans. They’re looking for opportunities where Brits have fallen out of the market. From what we experienced, ski resorts are still buyers’ markets and opportunities do not hang around for ever. We therefore decided to take the hit on the pound and it was softened anyway by a low long fixed rate. We took an 85% loan to value and may pay some of it off earlier if the currency shifts back over the next 12 months.”

To talk about your options and how to plan around the recent shift in currencies, please get in touch with one of our French mortgage experts today.


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.

french-mortgage-rates

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.