After what has been almost three years of continual drops, French mortgage rates have started to rise again. At the end of May rates hit all time lows of 2.55% on a 20-year fixed rate mortgage for the typical overseas buyer with a good profile.
At the start of June, 10-year government bond rates doubled in a matter of days, which caused lenders, one by one, to up their high street mortgage rates. Over the past few months more than thirty banks, including almost all of the main ones, have now increased their rates, sometimes by up to 0.4%.
Buy the end of July the 2.55% 20 year fixed rate mortgage had risen to 2.70%. In effect the increase is small with the 0.15% rise adding just €8 to monthly repayments per €100,000. The increase on interest payable over the full term is a little more substantial figure. Across the 20 year term the total interest payable would rise from €27,762 to €29,528, so almost €1,800. Bond rates have destabilised again a little, so 2.70% is where it seems to be holding, for now.
The rate rise caught a few international buyers by surprise, creating a spurt of activity amongst those who were being a little lackadaisical with their mortgage application. But it was French owners, and some foreign owners too, that were caught napping. They had been waiting, biding their time for the rates to drop as low as possible before refinancing their home loans. Many had bought when rates where in the 4.0-5.0% mark and had no doubt become used to watching the drops every few months.
The result was a surge in loan demand as both domestic and international clients tried to complete their applications. Banks became inundated, almost reaching a point where they were unable to cope with the demand. The initial surge has now died down, but banks are still very busy and those looking for loans of between €50,000 and €100,000 will struggle to be heard for a while. 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.
Yet whilst rates are up and the mortgage market is a few pence on the euro away from saturation point, there are still ways of getting market-beating mortgage products.
For those able to place between 12 and 24 months of mortgage payments in a savings account, representing 5-10% of the loan amount, much lower mortgage rates are accessible.
As an example, with 12 months payments in an account and a fee of 1%, we can currently source a loan at 2.2% over 20 years at 60% LTV. If you compare this to the current 20-year 80% LTV product at 2.7% you can save almost €6,000 (€5,830) on the total interest payable per €100,000 borrowed.
This additional cash is on top of the expectation for clients to 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, the long term gearing of the loan is much better.
Achieving a lower interest rate by putting down more deposit is nothing new though. But where this structure becomes interesting is with the 12 months mortgage payments that are put in savings.
On a €100,000 loan the 12 months payments in savings would equal €6,180. Not only is this money giving them the ability to save €6,000 per €100,000 across the term on interest (€300 per year) but the money on account would also accrue interest itself (1-2%). Some clients who have chosen this product so far are looking at the annualised saving of €300 per year on the total interest as a return of around 4.7% on the 12 month’s mortgage payments put on account.
Of course, a simpler way to look at it would be that if you have €6,180 plus interest in a savings account and are in year 19 of your mortgage, having already €6,000 on interest across the term, you would essentially be getting the 20th year of the mortgage for free.
95% of valid applicants successful
Even with rising rates, the French property market has performed exceptionally well in the first half of this year. The recent success follows an excellent final quarter of 2014 driven by the upturn of confidence in the UK economy, the strengthening of the pound and continued demand for property in key tourism areas of the country.
So far this year, we have seen a 95% success rate for those with valid applications. Buyers continue to be drawn to Paris, the Alps and the south coast snapping up new build property as well as maisons de caractere. This upsurge has lead to an increase of almost 100% in successfully financed deals, with around €100m worth of loans either completed or to be complete by the end of the year. 65% of this has been retail mortgages with an average value of €600,000, with private banking, bridging loans and commercial finance making up the remainder.
We are looking forward to an equally busy second half of the year as French banks try to get their house in order during the August period in order to cope with the new dynamic of increased applications and with the alpine season around the corner. Until then French mortgage rates should stay more or less as they are, with excellent products on offer to most non-residents.