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French mortgage market tightens - 7 July 2010

The French mortgage market is experiencing a tightening of bank policy towards accepting clients in some sectors because the economy has slowed but current currency rates are good news for British buyers.

Leading French loan broker Athena Mortgages said that attitudes amongst many of the banks have now changed and there is more caution about lending in particular to self employed people.

‘The past 18 months have been uncertain times in which the economy has slowed considerably. This has meant a reduction in gross profit for many self employed borrower during 2008/09. The reduction when taken in context with other years of business may seem reasonable given the economic context. However, we have seen several borderline applications refused due to significant reduction in net revenues over the past month,’ explained director John Busby.

‘This indicates a returning level of conservatism on the part of the French banks which saw it almost impossible for self employed borrowers to find loans in France in the mid 1990s. For salaried borrowers, revenue will have remained constant over the period but borderline cases are harder now to pass through the bank’s lending committee,’ he added.

But with most currencies having strengthened against the Euro it is cheaper to make deposits on properties and the net cost of mortgage payments is also less. ‘The pound is at a 19 month high against the Euro and the horizon for rate increases still seems a way off and mortgage rates remain at their historic lows. So for the meantime the buying conditions in France are improving overall,’ said Busby.

There is also good news for those looking to buy leaseback properties in France. Several French lenders have announced that they will be offering 100% of the price of the property and 100% of the stamp duty and taxes, which can be up to 8% of the property value.

‘Mortgages are now available on a new build French leaseback for 104% on both a repayment basis, from 2.6%, and interest only basis from 3%. French banks will finance up to 108% for a renovated leaseback at the same rates. Some banks have increased the amount they will lend by 15% on certain French leaseback developments,’ explained Busby.

Interest in French leaseback property has been strong over the first six months of the year with many French leaseback developments selling out in record time and this is expected to boost the sector even further.

‘The number of clients searching for French leaseback mortgages increased by over 50% in the first half of 2010 compared to the second half of 2009. The number of new enquiries for mortgages for French leasebacks has remained stable in the past quarter with the number of people progressing their application increasing sharply in the last week since the Budget announcement,’ said Busby.

UK investors have sometimes struggled to secure units in the face of strong competition for apartments from their French counterparts who have the added incentive of the Loi Scellier, a tax break from the French government that allows a portion of the value of the property to be offset against income tax liability.

‘This is an unprecedented move that reflects the confidence of the French banks in the security of the investment and the developers. When you look at the return on investment for investors who have put very little money into a property purchase, even with minimal growth, the returns are impressive,’ he added.

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