Francois Hollande and The French property market

Francois Hollande's election is representative of the French people’s will for change as they are tired of a centre-right led government which has always been rigid in its approach to security, immigration and work.

Holland is to re-launch a program for growth and stimulate the economy instead of implementing the austerity measures of Sarkozy.

The real estate sector accounts for 18% of France’s economy and growth, so it is likely this sector will benefit from some sort of stimulus package. If you combine this with the strength of the loan book of French

banks and the low default rate of borrowers, it is unlikely France’s real estate will suffer dramatically even if lending continues to slow. Hollande will focus on the needs of the country, developing affordable housing, green constructions, transportation infrastructure etc..

The industry sector is the 3rd largest employer in France, with 7% of the employees and 84% work in construction. If a socialist president is focussed on reducing the unemployment rate, he can't ignore the importance of the property sector so therefore we believe that much of the infrastructure work will result in new projects including new airports and train lines using a mixture of private and public money to finance it. As France is the world’s most visited country and tourism is one of the main pillars of the economy, the impact on construction of hotels/residences is closely linked to real estate and one which Hollande will have to address.

Overall there is undoubtedly less of an appetite for new build in key residential areas, however the demand in key resorts remains strong due to the scarcity of land, construction and interest from international investors

and holiday-makers so while there may be an overall decrease in average French property prices our partners anticipate prices in prime locations in Paris, Alps and Cote d’Azur to remain more stable. Our partners essentially see these areas of the market continuing to do better than average in a two-speed market, much like the UK, where areas outside of the popular destinations suffer declines in prices, whilst prime locations remain static as properties are taken off the market until growth returns.

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French Mortgage News & Index updates

The current period is, in spite of the upcoming elections, a great period to get a mortgage for the following reasons:

• Banks have money to lend at low rates
• Banks’ activity has significantly decreased, they have fewer files to study which shortens the time by which they give their decision and they are more open to negotiation on good profiles.
•  Finally, as “the Salon de l’immobilier” is being held, banks are making discounts: some have « offered » a 3.65% fixed rate over 20 years!

The reason the banks have money and are able to lend at lower rates is due mainly to the ECB LTRO (Long term refinancing operation) programme which lent millions of Euros to each bank providing a massive increase in in liquidity to the mortgage market, allowing the banks some breathing space. This has also put downward pressure on the Euribor which has been dropping steadily and now stands at approximately 0.75% meaning thousands of borrowers are now paying less for their mortgages.

If you would be interested in finding out how much you can borrow in France or to discuss the current best buys, simply contact us to find out more about French mortgages.

ECB, currency policy
The ECB has, as predicted, maintained its main rate at 1%, in spite of the risks on the activity. Mario Draghi, conscious the inflation rate is above the maximum level fixed by the ECB itself (2%), believes that they have to maintain the support to the banks as long as global “exit of crisis” strategy has not been found.

EURIBOR, short-term rate
The Euro Interbank Offered Rate is the rate at which French banks and institutions lend money to each other. The drop in the rate that has begun with the first LTRO is not about to stop as it seems that the ECB is not unlikely to act again. On the 11th April 2012 EUR 3M=0.760% and EUR 1Y =1.393%.

TEC, Long-term rate
The level of the TEC 10y shows the level of the long term fixed rate that is being applied by banks for mortgages, on top of which they add a margin. This mid to long term loan has led to a small increase in rates, but demand still is supplied. This increase is also partly due to the presidential elections, causing some kind of uncertainty. OAT 10y on 11th April 2012= 2.98%.

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French banks under pressure to lend less to non-residents

I think there is no doubt that it is harder now to obtain a mortgage in France than it has been for some time. The French banks have all taken a hit from the Greek write downs and the new Basle minimum capital requirements are making in more expensive for banks to lend money. If you add to this a securitised Bond market which is also looking more carefully at the make-up of the bundles of mortgages being securitised we have a return to sanity which is unfortunate for those seeking “non-standard” loans which is making it harder for non-residents to borrow in France.

On a positive note I think there is a natural filtering mechanism in place in that it seems that only those who are able to obtain funding in France are applying with us. There are many people who have not been affected negatively by the crisis in terms of their spending power. These people are exactly the type who are our main clients and also exactly the type of borrowers the banks are seeking. So while we have seen a 50% fall in the number of people visiting our website to find a mortgage in France, our levels of enquires are steady over the past 12 months. The French market is expected to slow down this year and those looking to get out of it will most likely accept good offers which puts those house hunting this year in France in a very good position.

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Opening a bank account in France.

Now opening a bank account in France can be done right from your PC. We are only need a few simple documents and you can have your French bank account open in 48hours. Many people find the process of opening a bank account in France quite daunting, especially trying to overcome the language barrier.

French Private Finance now offers this service for a small fee which comes with the following benefits.

• No need to travel to France to open your French bank account

o All the process could be done online

• No need to speak French

o English speaking customer service are there to help you

o Solve your issue quickly and easily

The documents for opening a bank account in France via French Private Finance are as follows:

• Signed French bank account application (copy first and then the original in the post to us)
• Passport copy
• Last two salary slips if you are employed or your last tax return if you are self-employed
• Utility bill less than 3 months old
• Mariage certificate if applicable
• Your reservation contract/title of the property in France – if applicable

You will need to be an existing or future French property owner.

If you require help or assistance from your property in France, just give us a call on +44 207 471 503 or contact us .

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What is the EURIBOR anyway?

The EURIBOR (Euro Interbank Offered Rate) is the main index against which French banks set their variable rate loans. For variable rate loans in the UK we generally use the Bank of England base rate plus a margin (the banks charge for lending the money). Linking rate changes to the main bank index makes it easier to judge when rates change.

By comparison, in France, variable rate mortgages are linked to an Euribor. There are Euribor rates ranging from 1 month to 1 year, the one day Euribor being the lowest and the 12 month the highest (1.2%). Most banks use the 3 month Euribor, for variable French mortgages which currently stands at 1.18% as we can see from the French market trends box. To this rate of 1.18%, French banks add their margin. The average margin is currently 2%, which if added to the 3 month Euribor today gives a variable rate of 3.18%. The Euribor is calculated as a daily average of lending rates by a sample of 57 of the most active banks in the Euro zone and broadcast at 11am im the morning. In practice, the main changes to the Euribor rates come only when the main ECB rate changes. Banks usually use the average of the last quarter when calculating and applying any changes to your rate.

It is always important to check which Euribor rate as well as the margin added to your loan and to compare likefor like as a loan with a lower margin might be based on the much higher 12 month Euribor.

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Pound to reach €1.25 in 2012?

Investors are tiring of the endless succession of agreements to resolve the Euroland sovereign debt crisis. Plans A through D have come and gone, either applied only selectively or trashed in toto. November's Plan D, for example, had investors "voluntarily" writing off 50% of their loans to Greece. A couple of days before Christmas the International Monetary Fund moved the goalposts. It called on bondholders to dig deeper and accept what would amount to a 65% loss. Investors had not been overjoyed about losing half their money; they were even less enthusiastic at the prospect of losing two thirds. Plan E, the latest, is a long-term project that will compel member states to observe the rules of the 20-year old Maastricht Treaty and the Stability and Growth Pact of 1997. In essence, countries that fail to keep their budget deficit below 3% of gross domestic product will be punished. How, and by whom, has yet to be decided.

There was one measure that might have turned the tables. The European Central Bank said it would make unlimited three-year loans available, at 1% interest, to every Euroland commercial bank. The first round of this Longer Term Refinancing Operation took place on 21 December. Analysts had calculated that demand could amount to €300bn. In the event, more than 500 banks lined up to borrow an average of nearly €1bn apiece. Any excitement that somebody was doing something was eclipsed by concern that so many banks needed so much money. The exercise did nothing to lower the Italian government's borrowing costs, which remain five percentage points higher than Germany's.

Neither Britain nor the United States face any comparable problem. Both are proprietors of their own currency, a position that gives them the power to adjust interest rates to suit their individual circumstances and to print as much money as they see fit. The latter ability means they need never default. For now, that gives them an advantage against the euro and both have strengthened against the single European currency by about four cents in the last month. There is every chance they will have picked up another four by the end of January.

This even should trigger an increase in interest in properties in France, check out our French mortgage best buys.

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How to get the best French mortgage loan rate

The recent rate increases and tightening of banking criteria were always going to come after French interest rates reached historic lows last September and we also had maximum LTVs. However, all is not lost as French mortgage finance is still available at 80% LTV for Second homes and Leasebacks at rates far more competitive than those available in the UK.

At 80% LTV you have 3.70% capped at 4.70% for the entire 20-year term or alternatively you can fix at 4.35% for 25 years. In spite of the recent rate rise on the 7^th July by the ECB, the long term index called the TEC 10 is down 0.25% from its 2011 peak, indicating a softening of the view on long-term interest rates. When you compare these French loans with the comparable UK 5-year fixed rates they are very competitive indeed. The peace of mind and security offered by these sorts of mortgage products really is an area where the UK has something to learn.

My top 5 tips for dealing with a dynamic rate and bank attitude environment such as this is to:

· Begin investigating mortgage options as early as possible in the buying process and get a decision in principle from an independent broker.
· Ensure you qualify for life assurance and find out if you will require a medical exam.
· Ensure all paperwork for the loan application is as complete as possible prior to signing a Compromise de Vente (purchase agreement)
· Once you are ready to purchase, send the completed file to an independent broker who is aware of the criteria and can place the application quickly with the right bank to match your profile.

· Sign and return all documents as quickly as possible to keep the momentum going as the longer the file is in process, the more likely criteria can change or rates increase.

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French property market tightening for overseas buyers

The market for French property may be set to suffer from a reduction in the amount of overseas buyers owing to a combination of economic factors. The European economy has exited recession strongly which has pushed up the price of a euro to record highs against several currencies over the past few months.

This has made it less affordable for overseas buyers of French property on two counts. Firstly the value of any deposit available to put towards the French property is less and secondly the higher value euro has decreased the amount non-residents can borrower based on the French banks income to debt ratio affordability criteria.

Which brings us to the second reason for the market tightening up, the French banks’ attitude to lending.

Many banks have decided to reduce their exposure to the real estate market and so have been tightening up their underwriting criteria when choosing which clients it wishes to lend to. Some of these changes are in anticipation of the new capital adequacy requirements and responsible lending practices of the Basle III agreement between international banks which will come into effect at the end of 2011.

The main people to suffer from the increased criteria will be those on lower incomes who will be required to show they have enough money after, their mortgage payments, to pay for living expenses according to a chart which includes the number of children in the household (fair enough). Investors who which to borrow on an interest only basis will also find the available loan durations shorter and requiring an increase in the level of net assets in cash and investment property to secure the loan. Those with very large property investment portfolios may also struggle to find a willing lender as each person’s maximum total borrowing may soon become 7 times their gross income which includes your main residence and all investment property.

Athenamortgages.com is the largest French mortgage brokerage in the UK, with offices in Dublin and Paris. Working with a network of more than 50 resident and non-resident lenders in France, Athenamortgages.com provides access to a wide range of bespoke loans and mortgages for properties in France.

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French mortgage rates and tips

Mortgage lending across the board through UK lenders has dried up over the past 12-24 months. This has inevitably had an impact on the ease with which British buyers can secure finance through UK banks to purchase holiday homes in France. The days when homeowners released equity from their properties to pay for that dream property in Provence are a distant memory.

Rather than using cash or remortgaging their properties in the UK to buy holiday homes in France, the French mortgage is growing in popularity. A combination of falling house prices in the UK eroding the equity that homeowners have in their properties and the UK mortgage market drying up leaving homeowners with very few remortgage options, has seen an increasing number of British buyers turning to a French mortgage as a means of financing a property purchase in France.

Also, with the Pound currently weak against the Euro, buyers can take currency fluctuations out of the equation, and potentially save thousands of pounds on the purchase, by taking out a French mortgage and holding onto the property until Sterling rallies.

For those buyers who have 15-20% deposits, French mortgages are proving particularly popular with UK buyers who can still take advantage of some of the lowest mortgage rates in French history. Although historically French lenders have had much more stringent lending criteria than the UK banks, for those borrowers who can meet these criteria, there are some exceptionally attractive fixed and variable rates on the market. It is even possible to secure 100% mortgages if the borrower has savings that amount to 30% or more of the amount they want to borrow.

It's worth noting that borrowers will have to prove they can afford the repayments on the mortgage. French mortgages work on the basis that the total of all mortgages and loans held by the borrower do not exceed one-third of their income, which means that monthly repayments on a UK mortgage will be taken into consideration when trying to fund a property purchase in France.

4 Top tips

1. Identify the area you would like to find a property in.
2. Review your financial situation with a professional French mortgage broker to find out how much you can borrow and the costs.
3. Send your broker your financial documentation and obtain a decision in principle, to be used when negotiating price with agents.
4. Finalise mortgage choice and selected a protected payment, long term capped or a fixed rate for the term.

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