September saw more attention than usual on the French banks as the media spotlight turned on those banks holding large quantities of Greek debt. Of the main banks under scrutiny, Crédit Agricole, has the most exposure with approximately €21 Billion in local exposure, whilst Société Générale has approximately €6 billion in local exposure and government bonds leading to a Moody’s rating cut; from Aa1 to Aa2 and Aa2 to Aa3 respectively. In reaction to the market conditions many French banks have been restructuring and looking to reduce risk across their portfolio of businesses, as was previously discussed in this column in relation to French banks changing their lending criteria. A significant development in the international investment mortgage market is the news that LCL, a subsidiary of Crédit Agricole, is to close its doors by the end of the year. This follows on from Société Générale closing its international branch in March 2011.
On a slightly brighter note, it seems that interest rates could be set to fall further with the European Central Bank expected to cut rates by up to 0.50% to a low of 0.75% at their next meeting in October. With long term interest rates hovering around their historic low at 2.50% on the TEC 10, the government 10 year bond price, we can anticipate long term borrowing rates to also fall further within two months.
What this means is that, similar to this time last year, the buying conditions for French property are some of the best ever seen. With the opportunity to lock in a long term rate for up to 25 years on either a fixed or capped basis, investors and house hunters can secure an asset to hedge against rising inflation safe in the knowledge that maximum monthly mortgage costs are manageable.
French banks are still cautious about who they lend money to in the current climate, and to increase the probability of securing finance a deposit of 20-30% is recommended, although it is still possible to borrow 100% of the purchase price of the property through certain French lenders. To be considered for this level of finance borrowers would need to place between 10-20% of the purchase price of the property under the control of the bank.This investment can be kept in the currency of your choice and the target return on the money is 3-4%.