French Mortgage Watch April 2016

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French mortgage rates dive to new historic lows

This month mortgage rates in France have dropped to new historic lows offering increased long-term value.

Mortgage interest rates in France have now reached unprecedented levels, so much so that non-residents with good profiles can now access 20 year fixed rate mortgages from as little as 2.25%.

In terms of savings, compared to May 2014 when French 20-year fixed rate repayment mortgages were at 3.70%, rates have today decreased by 36%. In money terms, the total interest payable on a loan of €300,000 over 20 years has dropped from €117,571 to €72,822 a saving of €44,749, or €3,729 a year.

MW April Infographic
Each €100,000 borrowed currently costs €436 per month over 25 years, €518 per month over 20 years and €655 per month over 15 years. There has never been so much long term value in the French market which is why high-end buyers are returning in force.

 

img-john-Busby-French-private-finance

JOHN LUKE BUSBY
Private Clients Director

Why have rates dropped?

Mortgage rates in France reached their previous lows in early 2015, dropping to rates of 2.55% fixed for 20 years. Since then, after a small rate rise last summer, which caused international and domestic buyers to rush to the market to secure the best rate possible, the 3-month Euribor (Euro Interbank Offered Rate) has dropped further into negative territory, passing below -0.24% for the first time for over half a century. This is largely as a result of the European Central Banks decision to cut their base rate to 0.0% in March this year.

The Euribor is used by the vast majority of French banks as their reference index with a margin added on top to create mortgage rates. Current margins are in the region of 2% over the 3 month Euribor (which is now effectively at 0). The changes in the ECB rate generally drive changes to the Euribor.

Those with very good profiles who are buying in popular areas may also have the ability to access even better rates. In locations such as Paris or big resorts in the Alps it is even possible to access 20-year fixed repayment rates below 2.0% providing you can wait as the process can be slow.

French Mortgage Best Buys
Repayment
Rate Duration LTV Description
1.90% 20 years 80% Tracker mortgage 3m euribor +1.9%
2.25% 15 years 80% Rate fixed for the term
2.45% 20 years 80% Rate fixed for the term
2.65% 25 years 80% Rate capped + 1.5% for 10 years
2.75% 20 years 80% Rate fixed for the term
3.15% 25 years 85% Rate fixed for the term
Interest Only
2.75% 14 years 75% Tracker 3 month euribor +3.00%
2.80% 25 years 75% Variable tracker with cap at 4.30% fo 10 years
3.30% 14 years 75% Fixed rate

France in the Press

 Tourism to France increased in 2015 despite Paris terror attacks
The overall number of tourists visiting France in 2015 rose compared with the year before to reach an all-time high despite the two deadly attacks in Paris in January and November.
 Why Eurozone assets, not UK, are at biggest risk in a Brexit vote
New data highlights the most popular destinations booked by luxury travellers visiting France on a luxury budget.
 Holiday homes in the Alps: wake up in France and ski to Italy for lunch
The Evening Standard’s overseas property editor Cathy Hawker gives her opinion on a French resort with enough skiing to challenge the biggest resorts, but with much lower property prices.

 

French mortgage transaction of the month

Hedging against currency movements

Foreign expats living and working in the UK are also making the most of the current market in France, as is shown by this month’s transaction of the month.

The euro’s movement against both the pound and the dollar over the past few months has led many French property to utilise the long term rates as a hedge against further currency movements.

Whilst one of our current clients – who is buying an €800,000 apartment in Courchevel – has enough cash to finance the purchase outright, he does not want all the cash to be exposed to currency fluctuations. He chose a long term fixed rate mortgage on a term of 15 years for 75% of the property value thereby only exposing 25% to currency fluctuations.

From the blog

Rents in France rising for Euro 2016

Rental prices during the forthcoming Euro 2016 football competition are on the up across France. A study by the UFC-Que Choisir revealed that hoteliers have upped room rates by 80% during the competition.

Read more
First €5,000 fine for an illegal Paris sublet on Airbnb

For the first time a Parisian tenant who sublet their home over the Internet without permission of the owner has been sentenced by the Paris courts

Read more

Fixed repayment rates in France now available below 2.0%

For buyers with very good profiles buying in locations like Paris or big resorts in the Alps it is now possible to access 20-yr fixed rates below 2.0%.

Read more

 

Rate and indices

European Bank Base Rate and Euribor
The 3-month Euribor continues to drop, passing the -2.50% mark for the first time in over 50 years.  The vast majority of all French mortgages use the 3-month Euribor as their reference index with a margin added on top. Current margins are in the region of 2% over the 3 month Euribor.

mortgage rates in france

Fixed rate mortgages: The TEC 10 index

The Tec 10 has rebounded a little in the last few days, after sliding to its lowest point for over a year in March. The TEC 10 index in France gives an indication of how much the French government is charged to borrow money on a 10-year basis. In this way it is also an indicator of economic confidence and the perceived outlook for growth. Movements in the TEC 10 often produce changes in the available fixed rate mortgages in France. These changes are not instant and usually take a few weeks to come into effect.

french mortgage rates

Currency Rates vs Euro

Whilst the soap opera that is the Greek economy and its involvement in the single currency is giving most a dull headache, day-to-day investors continue to capitalise on the market as it is. More positive growth for the UK, expanding by 0.7% in Q2 gave further fuel to the fire, enabling sterling to scratch out some of the gains the euro made after the noise of agreement over the last few weeks. For the USD, it looks as though 2 rate rises are on the cards this year, with the first coming in September.

Currency

1 GBP €1.29
1 USD €0.88
1 AUD €0.67

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