French Mortgage Tips

As we hit the busy ski season and many property hunters look to evaluate their budget for buying that dream French ski property, here are five top French mortgage tips to consider when looking to acquire finance in the France.

1) Prepare to show ‘rainy day’ funds

Just like in the UK there are additional buying costs on top of the deposit capital you are putting into the property. French banks will also want you to demonstrate that there is a buffer after this i.e. ‘rainy day’ funds, so that if anything unexpected happens the bank knows you have the means to handle it.

2) Understand eligibility criteria

French banks are keen to lend to foreign investors provided they meet the lending criteria. However French authorities do not have access to credit scoring data which means applications are assessed on proof of income. Three years tax returns and three months income is required for employed, with three years required for self-employed.

3) Get professional advice

One of the main reasons French mortgage rates are so low is that the banks are competing heavily for buyers. As a result, an international broker specialising in French mortgages for non-residents will be able to offer products which are better than if a buyer was to go direct, a no extra cost.

4) Be confident of rental returns

For leaseback properties and also standard buy-to-let properties, make sure you are confident of the returns, especially if you are factoring these into your mortgage payments. For leaseback properties, banks take the projected returns into account when considering the application, but you also need to be confident of the property’s ability to generate the rental income.

5) Understand the system

The French mortgage system is more regulated than in the UK, but this is what makes it so secure and is part of the reason why they can offer such low rates over such long terms. Of course, this can sometimes mean the application process takes a bit longer, but in the end it will be worth it.


French Mortgage rates: Demand for French mortgages increases in December

Year 2012 ends with French mortgage rates at historic lows, mainly due to a fall in the 10 year government bond rate (TEC 10) and an offensive policy from banks in a difficult market. The beginning of the year recorded a sharp drop in demand but since September, in a context where borrowing has never been so inexpensive, demand has increased again thanks, in part, to an increase in borrowers re-mortgaging.

 

Fixed rate mortgage rates decreased by 0.76 points on average in year 2012

In December, 49% of banks have lowered their fixed rates whereas 51% have left them at the same level. No increase from any bank has been recorded. The average rate also decreased slightly to 3.55% over 20 years (against 3.58% in November and 4.31% in January). In 2012, rates have decreased on average by 0.50% to 0.85%. This is a historic  decline that nobody expected in early 2012. One explanation can be found in dramatic decline in the TEC 10 index (the rate at which the French government can borrow for 10 years, which now stands at 1.99% in December. The other factor is that banks which declining demand are offering favourable discounts to attract customers,

This December, borrowing €200,000 over 20 years costs on average €80 less per month than in January. This leads to an overall savings of nearly €20,000 over the loan duration.

 

Where next for the market?

Since the beginning of the year, experts have observed a decline in demand (-20% of applications with signed sale agreement in Q1 year on year), mainly due to the change of Government and more generally to the economic conditions and high price context. Since September, thanks to a windfall linked to interest rates, mortgage application volumes have shot up to regain the 2011 levels, though  25% of applications are now for a re-mortgage.

In October, the Banque de France recorded a rebound of 21% over a month in the number of completed French mortgages, but reported a 34% drop in total over 12 months. In the current economic context, borrowers rely on brokers for advice, support and expertise. Existing borrowers also ask them to renegotiate their mortgage and take advantage of historic low French mortgage rates.


French mortgage market trends 2013

Borrow less, for less time.

The trend for individuals seeking to take a mortgage is to borrow less capital on a shorter duration. The statistics also indicate that individuals are opting for the shorter loan terms to benefit from the favourable conditions offered by banks. Only 13.8% of requests were for a 30 year term on a repayment mortgage in October, against nearly 15% in January, and the average duration requested fell in October to 244 months against 259 in January 2011.

 

A softening of underwriting criteria?

Contrary to popular belief, banks want to lend to customers at low rates. Mortgage lending remains a good lever to attract new customers in the French domestic market that they can keep for the duration of their credit, an average of 7 years. Reports suggest that banks have not tightened their mortgage affordability requirements recently. Instead, lenders are more diligent and careful about the financial situation of applicants, which all would agree is justified in the present context. On the other hand, while looking for the best borrowers, some even have softened their requirements, offering special deals for the younger borrowers or lowering the minimum income levels to make it easier to get a loan.

In the context, overseas buyers can easily apply for a French mortgage and take advantage of the excellent French mortgage products to invest in a second home or a buy-to-let property in France.

 

20122011
Average French mortgage amount€168,553€168,221
Average deposit amount€67,478€66,039
Average transaction amount€251,818€254,923
Average deposit rate24.6%21.9%
Average French mortgage length18.7 yrs18.9 yrs
Average income for a couple €5,029€5,086
Average borrower age 36.8 yrs36,5 yrs
Borrowers less than 35 years old 46.6%47.2%
Borrowers less than 30 years old 23.8%24.6%

France: mortgage volume keeps on falling

The amount of mortgages granted by banks continued to register a strong decline in the third quarter with a drop of 24.3% compared to the same period in 2011, according to a study of the French Mortgage Watchdog (Observatoire Crédit Logement/CSA) published on Thursday. In August, the volume of transacted mortgage business declined sharply. Then, in September, when the market usually pick up again, the recovery was very soft,  Credit Logement said in its study. For the first 9 months of 2012, the fall is even more dramatic with a decrease of 30.5% compared to the same period in 2011.

The paradox of this situation lies in the fact that mortgage rates are very low and continue to decrease. In fact, interest rates have been falling since March and are not very far from their lowest level since 1945 (3.25% on average) reached in November 2010. Mortgage rates are currently an average of 3.38% this October against 3.43% in September and 3.97% in January.

 

For the whole of 2012, the total value of mortgages granted by banks should only reach a little over than €115 billion, a decline of almost 30% compared to 2011 (just under €162 billion ) and a long way from the absolute record in 2007 (€170.2 billion), said the author of the study, Michel Mouillart, professor of economics at the University of Paris-Ouest. We have never faced a drop of this magnitude and that quickly. During the depression of 2008-2009, it took two years to get there. This time, it took just one year, says Michel Mouillart.

This reversal occurs after a boom in the mortgage market from the beginning of the century which had contributed to the good performance of the property market in France: 70.8 billion in 2001, 87.3 in 2003, 143.7 in 2005 and 170,2 in 2007. On the other hand, this situation is an opportunity for would-be buyers with good financial circumstances. Thanks to the ultra-low French mortgage rates, which can be fixed for up to 25 years, and relatively high inflation, it is becoming increasingly attractive to invest in a property in France.