Mortgages in France -Why buy French property now?

Obtaining French mortgage finance for a property in France can sometimes be a daunting process as the French banks generally demand more documentation to support an application than their UK counterparts. Add the cultural and language barriers and somehow just releasing equity in the UK starts to seem like a good idea. Whilst the pound/euro exchange rate has certainly improved over the last few weeks to €1.20 to the pound in anticipation of the UK getting its finances in order, it is still 20% down on where it was a couple of years ago and in effect by paying now in pounds the price is effectively 20% higher today. Not so if you take out a euro denominated French mortgage. By keeping the finance and the purchase in the same currency the monthly mortgage payments might be higher than they would be at €1.45 to the pound but the historically low interest rates more than make up for this. The 3 month Euribor the rate upon which most variable rate mortgages in France are pegged now stands at 0.74%, + an average margin of 1.5% gives an average variable rate of 2.3%.

The whole process of getting a French mortgage can be made simple through the use of a broker. A good French mortgage broker will assess your situation and plans for your intended purchase and provide a selection of loans that will meet your criteria. At athenamortgages.com, we generally layout all the purchase costs and mortgage payments in a time line so as to provide a clear comparison between the different loans available. These comparative simulations are made after a consultation with the prospective borrower comparing up to 3 different products side by side. Currently we can offer up to 100% of the property price for a second home or investment property in France which means the exchange rate concerns are minimized with only the 8% stamp duty and taxes to pay. This loan will typically be on a repayment basis over 25 years at a rate of 3.8% capped at 4.8%. Loans with a fixed rate of 4.3% for 25 years are also available at 90% of the purchase price.

There are many good reasons why buying French property now is a good idea. For more information on the current best rates for mortgages in France please visit our best buy tables found at www.athenamortgages.com

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The effect of the UK budget on the French property and mortgage market

George Osborne’s budget today outlined some major changes to UK taxation but what effect if any will this have on the market for French property from UK buyers? The headline changes from the speech are the rises in VAT to 20% and the increase in capital gains tax to 28%. At first glance both of this rises appear to reduce the attractiveness of making investments as cash flow is effected by the rise in VAT and the long term profit of owning a second property in France is reduced by the increase in CGT.

Listening to Harriet Harman’s appraisal of the budget as being unfair on those with the lowest incomes, as proportionally speaking the increase in VAT will hit there hardest, we can glean that it some way this budget is beneficial to those on higher incomes. In many ways this is right, the effect of the intended reduction of the deficit over the term of this parliament will be of benefit to those on higher incomes, as in fact it will eventually be for everyone. With regard to the French property market, usually the preserve of those on higher incomes who are least affected proportionally by the increase to VAT, the effect of a Britain living within its means will be a stronger pound, and therefore lower costs for mortgage payments, whether the payments are regular or lump sum.

The rise in CGT may deter some UK based buyers to the French property market, these same buyers being deterred in fact from almost any form of investment, if they are overly price sensitive. Just a few years ago the rate for CGT stood at 40% (with some additional taper relief benefits) so in fact the rise could have been larger but seems to have been optimised in terms of ensuring the balance of payments to the treasury increases. As the majority of investors in France look for the long term, I do not believe the rise in CGT will have much of a noticeable effect. In fact I believe that the certainty brought about by the budget will in fact allow more people to make decisions which had been delayed pending the budget.

Overall the picture looks good for the UK and the outlook for continued excellent conditions for buying French property with mortgages in France.

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Fixed rate mortgages in France vs UK.

Mortgage interest rates in France and across Europe are at an historic low currently which means that mortgage interest rates can only really go in one direction now. Whilst borrowers in the UK languish under the implied threat of interest rate rises owing to an UK inflation rate that is at the highest point since August 2008, the majority of their French counterparts can continue unconcerned thanks to their fixed rate mortgage in France which has a fixed rate for the term. Indeed, 70%-80% of current French mortgage holders have long term fixed rates of 15-25 years and with variable rates generally being capped and monthly payments on variable mortgages generally not allowed to increase by more than 10% per year, it is easy to see why the French are relaxed. By comparison, British borrowers live under the sword of Damocles as the majority, 70%-80% have fixed rates which are not longer than 5 years which means that there is always a chance of coming off a fixed rate into an environment of higher rates and thus substantially higher mortgage payments.

In France, the general trend is to have one mortgage to pay for a property rather than remortgaging every few years as borrowers do in the UK. The level of demand drives for fixed rate mortgages in France drives exceptionally good value deals not see in the UK. For example, at the time of writing, a French resident might fix for 25 years at a rate of 3.76%. “But that must be for a low level of loan to value!” I hear you cry. In fact this rate can be procured for 100% loan to value which makes the 5 year fix, currently available from the Co-op at 3.99% at only 75% loan to value, seem wildly overpriced. Even non residents can access a fixed rate mortgage in France with a better rate than that. Delving into the reasons for this price disparity, there are technical reasons relating to the UK banks purchases of covered bonds according to the Miles review commissioned by Gordon Brown but the main cause is the extreme price sensitivity of UK house buyers, looking at short term gain rather than long term value.

UK and Internationals buyers of French property can benefit from fixed rate mortgages in France with 4.3% fixed over 25 years at 90% loan to value being one of the most attractive deals. Unfortunately, French banks do not take charges on UK property, otherwise I am sure many borrowers in the UK would be looking to fix for the long term.

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