Thursday, 2 June 2011

French mortgage trends: French banks tightening lending criteria

French mortgage trends: French banks tightening lending criteria
This month has seen a dip in the desire of French banks to lend to international investors. It is rumoured that some leading banks have already reached their targets for residential lending for the year already, indicating a lack of liquidity and increase in risk aversion. This is also seems to be behind a reduction in the available durations for interest only mortgages and an increase in the net assets required for a pure interest only loan from 120% of net assets to 150%. If we widen the picture we can see that at least two other banks have closed their international branches, Societe Generale and UCB, compounding the trend for an overall increase in the reluctance to lend to international investors. Several banks have reduced the amounts they are willing to lend to borrowers from outside Europe, whilst one major lender has restricted their products to EU citizens only.
Another area that French banks appear to be tightening up on is affordability and the ratio of lending to gross income. Traditionally French lenders will only allow a maximum of 33% of the gross income of the borrower to be set aside for loans such as mortgages. However, lenders have started to change the goal-posts, refusing borrowers who they feel do not have sufficient funds to live on even though they meet the 33% gross income requirement.
In addition, French banks have started adopting Basle III criteria, a new global regulatory standard on bank capital adequacy and liquidity, which stipulates that total outstanding loans should be no more than six times borrower income. Serial investors with large buy-to-let portfolios and first time buyers, in particular, are the most vulnerable to the changes, as lenders appetite for risk recedes.
Best buys
2.70%25 years80%Tracker mortgage +1.30%
3.50%25 years80%Rate capped + 1.10% max 4.60%
4.00%25 years80%Rate capped + 1% max 5.00%
4.05%30 years85%Rate capped + 1.5% for 10 years.
4.50%25 years100%Rate capped + 1% max 5.50%
4.60%25 years80%Rate fixed for the term
5.00%30 years80%Rate fixed for the term
Interest Only
3.20%15 years70%Tracker +1.90%
3.90%7 years80%Tracker +2.40%
4.05%7 years70%2 year fix, then Tracker +1.40%
>> See complete list
*10 years
French market trends
 Average loan rates3.80%
 Average bank margin1.85%
 Annual house price+ 8.5%*
 French inflation rate2.10%
 ECB base rate1.25%
 3 month Euribor1.43%
TEC 103.43%
Change based on previous monthly rate

Currency Watch
1 GBP1.15
1 USD0.70
1 AUD0.75
1 JPY0.007

French property market trends: Tips for beating rate rises and changing bank criteria.
Helen, 47, an accountant from Kent, recently wrote to us having had a bad experience approaching a bank directly.
" The main reason for not going with that bank is our previous experience with them and also the experience of a friend of mine here in France.  We both feel they ask more questions and require more information then is reasonable, they take a long time to reach a decision and then change the goal posts between offering a decision in principle and making the final offer"
Sadly this experience is not uncommon but it is where we can help. 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 a 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.
  • 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.
Currency update: Euro Currency watch
The elephant in the euro's living room is trumpeting loudly and will not be ignored. Whilst it would be exaggerating to say that a sovereign default by Greece is now only a matter of time, it would not be a gross overstatement. Athens is selling off state assets and applying further spending cuts to demonstrate compliance with the strictures attached to EU and IMF loans. Ports, airports, utilities, the national lottery, even some islands are on the block as the country struggles to turn capital assets into cash to pay the phone bill.
The Greek debt fiasco is the main reason why the euro has been receiving a bit of a beating. The secondary reason is that the European Central Bank may be taking a step back from the interest rate increases upon which investors had been pinning their hopes.  After its May policy meeting the ECB signalled there would be no second upward move at least until July. The net result for the euro has been the loss of eight US cents and more than three sterling pennies in less than three weeks.
The main beneficiary of investors' misgivings about the euro has been the US dollar, not because investors are particularly enamoured of it but because it is the easiest and most liquid currency against which to sell the euro.  In the background is a slight change of tone at the Federal Reserve. The Fed has revealed it is at last considering a strategy to "normalize" US interest rates; i.e. to take them higher.  A move before the end of the year is possible, if not yet likely.
Sterling has taken advantage of the euro's discomfiture by keeping a low profile and doing nothing particularly wrong.  UK interest rates are not going up any time soon but nor, apparently, are anyone else's. Although investors see no compelling reason to buy the pound, neither can they find any fresh reason to sell it.

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