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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French mortgage currency update

Just as it was gearing up for roast swan and chestnut stuffing the pound suffered a setback in December. There was no single point of failure. It was the result of a combination of factors, some serious, some less so. The UK economy bore some of the blame. Some 33,000 public sector employees were laid off in a single month and none of them found new jobs in privately-owned firms. It was not what the chancellor had promised: he had promised the private sector would take up the slack. In November the public sector net borrowing requirement - the gap between tax revenues and public spending - hit a record £22.8 billion, not a clear sign that the government would be able to close the budget gap within five years. Economic growth in the third quarter of the year was downgraded from 0.8% to 0.7% at its second revision. It was not a big deal in itself but was seen as symptomatic of an intrinsically soft UK economy.

The euro has its own problems, not least the threatened downgrades of the credit ratings for government debt in Greece, Ireland, Spain and Belgium. A summit meeting of EU leaders in mid-December delivered an agreement that there should be a long-term plan to preserve financial stability but the details were sparse. Until investors see the details they will remain unconvinced. As long as they dislike the euro they will lean towards the dollar but it is difficult to tell whether they are buying it because they like it or selling the euro because they dislike it. From sterling's point of view, the euro's performance is important because Britain's economy is so closely involved with Ireland and the continent. If the euro goes down against the dollar the pound will surely follow.

The Christmas fortnight is always a dull period for financial markets. This one shows no sign of being any different. Exchange rates moved but the significance of any movements is likely to be minimal. The four cents that sterling has lost in the last month may well be important; its price action in the last ten days was always unlikely to be significant. For more news for mortgages in France please visit our website.

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