This month has seen a dip in the desire of French banks to lend to international investors. It is rumoured that some leading banks have already reached their targets for residential lending for the year already, indicating a lack of liquidity and increase in risk aversion. This is also seems to be behind a reduction in the available durations for interest only mortgages and an increase in the net assets required for a pure interest only loan from 120% of net assets to 150%. If we widen the picture we can see that at least two other banks have closed their international branches, Societe Generale and UCB, compounding the trend for an overall increase in the reluctance to lend to international investors. Several banks have reduced the amounts they are willing to lend to borrowers from outside Europe, whilst one major lender has restricted their products to EU citizens only.
Another area that French banks appear to be tightening up on is affordability and the ratio of lending to gross income. Traditionally French lenders will only allow a maximum of 33% of the gross income of the borrower to be set aside for loans such as mortgages. However, lenders have started to change the goal-posts, refusing borrowers who they feel do not have sufficient funds to live on even though they meet the 33% gross income requirement.
In addition, French banks have started adopting Basle III criteria, a new global regulatory standard on bank capital adequacy and liquidity, which stipulates that total outstanding loans should be no more than six times the borrowerâ€™s income. Serial investors with large buy-to-let portfolios and first time buyers, in particular, are the most vulnerable to the changes, as lenders appetite for risk recedes.
Rates have been flat over the past month with only a small increase to the Euribor and small drom in the Tec 10 for long term rates. We expact rates to remain flatish for the next month or so.