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.

Posted in: Fixed rates,French mortgage rates