Mortgage rates keep on decreasing

Mortgage rates keep on decreasing in France and brokers say that it reminds them the situation of October 2010 where rates hit record lows.

Some brokers in France have succeeded in finding the occasional unexpected fixed rate of 2.95% over 20 years for their French clients. Less than 3% for a repayment French mortgage over 20 years is a dream for many applicants. But the dream remains inaccessible to the vast majority of them even in this period particularly favourable. In fact, the lowest rates are only accessible for the best applicants that have a good financial health and are living in France. In fact it is hard to see rates being able to go any lower.

The average rate for a French mortgage over 20 years now stands at 3.80% (a decrease of 0.05% compared to the previous month). The decline appears even slightly more pronounced for mortgages over 15 years with an average rate fell by 0.10% to stand at 3.35%. International buyers can also access these rates for mortgages in France for their French property with a 20 year fixed rate from 3.60%. 

Being able to fix your interest rate under 4% for 20 years holds exceptional value. Once you take away the target inflation rate of 2%, you can see that you are only paying about 1.6% to borrow your money. This is why many people are looking again at the great leaseback deals available in the French Alps this ski season as you can combine an ultra-low fixed rate mortgage with a property that has a guaranteed income stream.

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Bargains galore in the French high end real estate market?

The high end property market in France is facing a dramatic increase in supply as Francois Hollande Government announces a tax rise in the coming months.

"It's nearly a general panic. Some 400 to 500 residences worth more than €1 million have come onto the Paris market”, managers of Daniel Feau, a Parisian estate agency which specialises in luxurious properties said to the French Press Agency.

This huge increase in supply is due to the fact that the new Socialist Government plans to raise the tax rate to 75% on income above €1 million per year and to introduce a marginal tax rate of 62.21% on sales of stock, which has led some the wealthy people say they will leave the country.

Entrepreneurs are mostly concerned as President Francois Hollande plans to reduce the French debt by taxing the companies and the wealthy. They have made a lot of noise, mainly on Facebook via a group called “Les pigeons”, literally The Pigeons that had attracted more than 8,000 followers on Twitter and 60,000 likes on Facebook. This group has forced the Government to back track and now say it will take into consideration the entrepreneurs requests.

In spite of this, some entrepreneurs are still thinking about moving abroad with their family to avoid paying more and more tax. Thanks to new distance working technologies, "it is now possible to work in any corner of the world and to spend one week a month in France", said Thibault de Saint Vincent, president of Barnes France, the principal competitor to Daniel Feau. The preferred destinations of those leaving are London, New York and Geneva, as well as Canada, Israel and Singapore, said Laurent Demeure, head of Coldwell Banker France.

However, we should probably take all this with a pinch of salt as the wealthy French often say they will leave the country when a change in tax occurs but the majority do not do so when they realize all the difficulties implied when moving abroad.

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Increase in taxes for non-residents

The French National Assembly has just confirmed an increase in the capital gains and rental income taxes. Overseas owners will be required to pay the additional taxes for the current year as the law will be back dated. However, there is some good news as these taxes should not affect the majority of non-resident owners. France has many dual taxation treaties. In the case of the UK, the new rental income taxes are lower than those in the UK. Whilst, the new capital gains tax rates in France tapes to zero after 22 years.

The French government expects to receive extra income from the increase in property taxes. Now overseas owners will be subject to the same rate and will have to pay 35.5% of tax on rental income versus 15.5% under the previous regime and 34% of tax on property gains up from 19%. As indicated above, it will be back dated to January 1st. However, European Union residents will receive a deduction from French notaries directly upon house sale if they have owned a property for a certain period of time. The taper relief will be of 5% every year after the first two years of ownership. The new system is more advantageous as it allows owners not to pay Capital gain tax after 22 years only instead of after 30 years with the previous one.

It is also possible to opt for a furnished letting tax system to mitigate the tax you pay on rental incomes and to also receive a total exception of capital gains tax after 5 years if you have more than €23,000 in rental income. These systems called LMNP and LMP are very profitable as owners can benefit from an amortisation system that cancels tax liability on the rental income (See www.frenchprivatefinance.com for more info).

In addition, an exceptional contribution on French wealth tax for 2012 will be payable on January 1st.  Household with total assets over 1.3 million euros will pay the difference between the former wealth tax rate and the new one settled by new President Francois Hollande. New rates have not been established yet. Nevertheless, only net assets are taken into account so it means that the current amount of your French mortgage is deducted from your gross assets.

As there is often a way to mitigate the tax you pay on your property investment, non-resident owners should use tax advisor services to optimize their annual taxes.

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French government to rescue Credit Immobilier de France

The French government has finally nationalised the Credit Immobilier de France which has been weakened by a liquidity crisis and a failure in the search for a buyer since May.  “To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee” said Finance Minister Pierre Moscovici on September 1st. The country would provide a 20 billion euro guarantee without spending taxpayer money.

However, the bailout is still subject to the approval of the European Commission. Prime Minister Jean-Marc Ayrault has reassured French citizens saying in a radio interview that, “The state has taken its responsibilities to provide a guarantee, but as this bank has its own capital, the money of taxpayers won’t be called upon”. In order to respect one of the state conditions, CIF will not be authorised to make new loans anymore.

At the moment economic analysts think that the government will drastically slow down the mortgage lender’s activities instead of searching for a buyer. On Tuesday, Moody’s cut CIF’s credit rating citing that it would be placed into a run-off scenario rather than being rescued. The ranking agency said a “run-off scenario is probably not the preferred solution of the French government due to the importance of the bank’s lending activities to the French housing market, especially in assisting less privileged households”.

Last week, Claude Sadoun, CIF’s Chief Executive Officer has resigned before being replaced by Bernard Sevez, head of a French social housing group. Meanwhile, French government expects Claude Sadoun to renounce to his severance payments of 1.5 million euro.

The government’s intervention comes just after the rescue of the Franco-Belgian Dexia bank in October 2011. This is the latest problem that President Francois Hollande has had to face after the recent mass layoffs operated by Peugeot and Carrefour supermarkets.

These changes also affect Banque Patrimoine et Immobilier who are a key player in the non-resident mortgage market. Effectively, BPI will have to cease new lending which means no new offers will be issued. All existing offers will be honoured but any clients who are in the process of applying had better look elsewhere (French mortgage best buys). This is certainly a blow for the French mortgage market for overseas borrowers as BPI were a major player in keeping the others competitive. With less competition in the market we are likely to see bank margins remain the stable or perhaps increase. On a positive note we are experience the lowest French mortgage rates since the second World War.

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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 Private Finance

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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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