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.