Two new trends in the French mortgage market
Credit supply reduced due to increase of applications
The French mortgage market for non-residents is experiencing growth problems as the number of transactions increases following the interest rate rises of recent weeks. This is partially due to staffing issues at some banks who were not prepared for the continued spike in applications. The sheer rate of increases in lending is also becoming a concern for the credit risk mangers who want things to slow down. This may happen on its own, as they don’t have the staff to cope.
Some lenders have responded to this problem by temporarily refusing to accept any new applications. The worst case so far is a cessation of all new business until September. Many of the large resident lenders are also no longer willing to undertake stand-alone lending or ‘le credit-sec’ as it is known amongst the banquiers.*
Tightening of application requirements creates market-beating opportunities for the best applicants
With increased lending frequency banks are asking clients to place between 12 & 24 months of mortgage payments in an account, which would represent 5-10% of the loan amount. This is on top of the expectation for clients have life assurance, home insurance and to maintain a good level of savings. Whilst the fees and outlay for obtaining these loans may be costlier, there is a trade off, with lower rates offered as a result.
As an example, we can currently source a loan at 2.2% over 20 years at 60% LTV, with 12 months payments in a savings account and a fee of 1%. Compared to the 2.7% 20-year product (featured in the best buy table) this represents a saving on the total interest of almost €6k per €100k. Another way of looking at it is that this annualised saving is essentially a return of 4.67% on the 12 month’s mortgage payments put on account, which would itself increase with compound interest over the 20 year term.
* Stand-alone (le credit-sec) lending is a loan or loans secured solely by on property.
JOHN LUKE BUSBY
Private Clients Director
|French Mortgage Best Buys|
|2.05%||20 years||80%||Tracker mortgage 3m euribor +1.9%|
|2.25%||25 years||80%||Tracker mortgage 3m euribor +2.0%|
|2.70%||25 years||85%||Rate capped + 1.5% for 10 years|
|2.70%||20 years||80%||Rate fixed for the term|
|3.00%||25 years||80%||Rate fixed for the term|
|3.20%||25 years||85%||Rate fixed for the term|
|2.30%||15 years||70%||Tracker +1.95%|
|2.60%||15 years||75%||Tracker 3 month Euribor +2.55%|
|3.30%||15 years||70%||Fixed rate|
Property of the month
From the blog
|Transaction of the month — long-term value for Paris buyers|
French rates have risen, but buyers are still able to lock in incredible long-term value, as we show in June’s transaction of the month.
Even before mortgage rates in France actually started rising, the French were moving to renegotiate their loans. Now that rates are rising, there is even more urgency in the market.
Rate and indices
European Bank Base Rate and Euribor
The 3-month Euribor rebounded a little further this month to 0.015%, up from its all time low of 0.005%. The vast majority of all French mortgages use the 3-month Euribor as their reference index with a margin added on top. Current margins are in the region of 2% over the 3 month Euribor.
Fixed rate mortgages: The TEC 10 index
The Tec 10 has continued its rally rising significantly over the last month.. The TEC 10 index in France gives an indication of how much the French government is charged to borrow money on a 10-year basis. In this way it is also an indicator of economic confidence and the perceived outlook for growth. Movements in the TEC 10 often produce changes in the available fixed rate mortgages in France. These changes are not instant and usually take a few weeks to come into effect.
Currency Rates vs Euro
Euro has continued its recent volatility in the past month with the common theme of Greece still running through it. The catalyst of a lot of the strength of the single currency has been a sell-off in European debts. Yields rise as bond prices fall. Bonds were bought as protection from a) deflation and b) Greece. Recent news has lessened the need for the protection that these bonds afforded investors and the euro has strengthened as a result of these bonds being sold. Moving forward inflation must remain positive and Greece must be resolved, which now looks highly unlikely.