Friday, 1 July 2011

French Mortgage Market Update

French mortgage trends:Good news first...
The good news this month is that it seems French President Nicolas Sarkozy has decided against setting a new tax on second homes in France. Reports suggest that he has had a change of heart after strong objections from the real estate community and question marks over the legality of such a move. Still, I expect he will gain some political points for proposing it and a few Gallic shrugs for dropping it, so overall he is probably up. This news will be a boon to many existing owners in France who do not make their properties available to rent, as well as to prospective buyers of second homes.
Now for the bad news. The rate rise is coming on July 7 when the European Central Bank is expected to increase the main index rate from 1.25% to 1.50% in spite of all the problems in Greece. French banks have been among the most exposed with Credit Agricole, BNP and Soc Gen - apparently holding the most private Greek debt - now under scrutiny. Coincidentally these banks have already made moves to reduce their mortgage lending to overseas investors with Credit Agricole and BNP withdrawing 100% finance for leasebacks and Soc Gen having already closed its international platform. This trend for tightening criteria and attitude to risk is continuing with the withdrawal of a three-year interest only product by the Caisse d´Epargne.
The overall picture is still good for borrowing in France, however, and the argument for using a broker who deals with many banks and who understands all the crtieria is even stronger to save both time and money. The recent rate increases and tightening of banking criteria were always going to come after French interest rates reached historic lows last September. French finance is still available at 100% LTV for both classic purchases and investment property at rates which every British homeowner would opt for in a flash. At 100% LTV you have 4.35% capped at 5.35% for the entire 20 year duration or alternatively you can fix at 4.35% for 25 years at 80%. When you compare with the comparable UK 5 year fixed rates your eyes water as a UK home owner. The peace of mind and security offered by these sorts of mortgage products really are areas where the UK has something to learn.
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.
4.35%25 years100%Rate capped + 1% max 5.35%
4.35%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 rates3.85%
 Average bank margin1.85%
 Annual house price+ 8.5%*
 French inflation rate2.0%
 ECB base rate1.25%
 3 month Euribor1.43%
TEC 103.36%
Change based on previous monthly rate

Currency Watch
1 GBP1.12
1 USD0.70
1 AUD0.73
1 JPY0.0088

French property market trends:
Tips for beating rate rises and changing bank criteria.
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
Most politicians and all national leaders in Euroland are adamant that the problem of  Greece's overdraft will soon be sorted. At the same time it is easy to find sceptics among Anglo-Saxon ex-politicians on both sides of the Atlantic: They see no sense in postponing what they see as the inevitable default and argue that lending yet more money to a spendthrift is like plying an alcoholic with booze.
Investors are doing their best to keep an open mind. On one hand they would much rather see the EU rescue attempt work than have to live with the consequences if it didn't. On the other, they cannot help but fear what will happen when the EU handouts eventually stop.  The uncertainty leads to frequent changes of sentiment towards the euro; the French president says it will all be alright and the euro goes up; an American investment bank says it will all end in tears and the euro goes down.
Sterling/euro has covered a range of six cents in the last six weeks with major changes of direction roughly once a week. Not all of those reversals have been down to the euro though. Sterling is still quite capable of shooting itself in the foot, as it did when the Bank of England's monetary policy committee started talking again about increasing the asset purchase programme - quantitative easing or printing money if you would prefer.
At least the Federal Reserve has put a nail in the coffin of its asset purchase scheme. It will end in June and is unlikely to be repeated in the foreseeable future. It will mean one less downward pressure on the dollar; it will not necessarily reduce the volatility of euro/dollar, which has covered a nine-cent range in the last six weeks with half a dozen reversals.
Interest rates in Britain and the States are likely to remain very low beyond the end of the year. Euro interest rates are likely to go up. That distinction will tend to work in the euro's favour but the advantage will be compromised by every new scare story about Greece.

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