French mortgage trends: Fixed rate mortgages jump in France

French property with pool

We have seen a large jump in the number of completions scheduled for the second half of the year following growing interest in the excellent French property market conditions during 2013. Internally our transaction numbers are predicted to be up 50% on the first 6 months of the year as the lure of rock bottom interest rates proves too much for those who wish to mix business with pleasure by investing in France.

It is certainly a buyer’s market in many areas where there are good deals to be snapped up. We have already seen the property market turn in the US and now in the UK too so these increases are now set to hit France.

As predicted in June fixed rate mortgages are now going up due to the 10 year bond yield increases. Tracker rates mortgages should remain unchanged for the time being.The ultra-low best of the best deals (only for those who really don’t need the money at all) for French residents started to increase a few weeks ago and now the main lenders have increased their rates by up to 0.50%.

The largest increases were to loans for a 10 year duration for which the best rate now stands at 3% fixed for 10 years. 15 year fixed rates and 20 year fixed rates both saw increases of 30bps now standing at 3.20% and 3.55% respectively.

Despite the increases, these rates still represent excellent value as the French government can borrow 10 year money at 2.50% and so the banks margin is only 0.50% on that rate. Sounds like a cheap rate and margin to me.

This increase has been seen across the board with French lenders also seeing a large spike and pick-up in activity. The increase in applications can be attributed to the fantastic buying conditions in France. The mixture of ultra-low rates combined soft property prices, especially at the top end of the market, means that there are bargains to be had.

French fixed rates set to increase?

French fixed rate mortgage interest rates may be set to increase following sharp rises in the 10 year government borrowing index. The TEC 10 index, which gives an indication of how much it costs the French government to borrow money for ten years, has increased by over 0.6%, in the past month, fuelling fears of increases to the fixed rate products of offer. The TEC 10 index crashed to its lowest ever level at the beginning of last month reaching 1.67% and producing the lowest ever fixed rates on the non-resident market. Over the course of the month the TEC 10 has been increasing and now stands at 2.37%*. If we maintain these levels for more than a few months, which it seems we might as there is talk of an end to the money printing by governments (see below in the currency section), the money borrowed when the TEC 10 was at its lowest ever level will run out and the increase will have to be passed on, which at current levels of activity may not be that long.

*2.37% is the about same rate at which the UK (2.50%) and US Governments (2.64%) are selling 10 year bonds. These rates are still incredibly low by historical standards and low in comparison with the 10 year rates found in Italy (4.5%) Portugal (6.5%), and Greece (10%).