Old school French mortgage lending is making a comeback. Non-resident buyers are opting for French mortgages with additional collateral or ‘Nantissements’, which are paving the way to lower mortgage rates and enabling investors to make money off their Nantissement side investment. This structure also provides access to 100% financing, thus potentially avoiding buying euros.
Nantissement deals are where, instead of giving 20-40% of the property price as a deposit secured on the property, a buyer takes a loan at a 100% loan-to-value rate and then places a side investment in cash collateral with the bank, usually equating to 20-40% of the property price.
With a standard fixed term product at 2.15% with an 70% loan on a 500k purchase, in theory investors put down a €150,000 deposit, therefore getting a €350,000 loan and paying €81,000 in total interest over the term. With a Nantissement product at 1.55% and 100% loan (€500,000) investors pay the same interest over the term (€82,000) but the big difference is the additional investment of 20-40% that’s put on the side. These investments would accrue interest, depending on what type of product was chosen for it.
“Nantissements are old but they’re become more attractive to buyers, especially those who are au fait with France’s low long-term lending,” says John Busby of French Private Finance. “In effect, the amount of money the buyer is putting down remains the same but the rate on the mortgage is lower. The client can also obtain a return on the money placed with the bank.”
“Given the current exchange rate, the 100% lending option is also attractive as it may be possible to not have to convert sterling into euros if there is a portfolio of stocks or shares which can be transferred to the bank.”
“The cash or portfolio collateral provides more security for the bank and in return the banks lower the rates, which provides an instant guaranteed return on the money placed with the bank as the overall cost of the mortgage is reduced.”
“Private banks have long attracted clients with this structure so it is refreshing to see this kind of offer for loans both below and above €1m, especially as retail lenders can offer extremely low rates fixed for the long term anyway.