It’s been a busy month so far in the world of French mortgages as buyers are back in the market looking to finalise deals after the lull during the Easter period. We have a seen a good pick up in the numbers of client enquiries, with a rise of over 20% on last month. The French banks have resisted increasing their rates, as the European Central Bank maintained its base rate at 1% for the 12th consecutive month. The likelihood of any rate rises in the foreseeable future seems remote owing to the troubles in Greece in spite of the 1 trillion bail out facility put in place by European finance ministers under the watchful eye of Chancellor Merkel and the animated figure of the French Prime Minister Sarkozy, who with a puffed out Gallic chest declared that if the deal was not agreed he would withdraw France from the Euro. So the Euro will remain weak in the short to medium term, with low interest rates to boot making buying conditions in France as good as they have ever been.
Much has been written recently about the end of the interest only mortgage, which has been the product of choice for people buying investment properties. In France we have seen the withdrawal recently of several products offering interest only periods. The fact of the matter is that interest only mortgages are only a relatively recent addition to the portfolio of mortgage products available in France, and the conditions for obtaining such a mortgage have always been relatively stringent.
For a pure interest only mortgage, borrowers have to have 120% of the amount they wish to borrow in equity, either in property, liquid stocks, tradable shares or bonds. The alternative would be to have a large deposit of 20% to 30%, or to place a side investment in cash with the lending bank of around 20%. Even in this case the bank may restrict the period where interest only is paid, tacking on a repayment period onto the end of the mortgage.
In order to qualify for this loan, the would-be borrower will have to show that the monthly payment for the repayment (capital and interest) is affordable. We have seen a large increase in the number of borrowers looking to switch from a repayment mortgage to interest only, perhaps trying to release equity. However, with the reduction in the number of banks offering such products, this sort of loan is only available to those borrowers with the best profiles.