Following the European Central Bank’s (ECB) decision this month to leave the Euro Base Rate on hold at 1%, mortgage rates of below 3% are now on offer from some banks in France. Six months ago, three month Euribor, a common reference rate for French mortgages, stood at over 1.8%; at the end of September, it was just above 0.8%. The fall in mortgage costs in France has therefore been just as dramatic as in the UK.
Tim Harvey, managing director of UK regulated overseas mortgage specialists Offshoreonline.org comments, “ In the UK, we have seen new loan interest rates dropping to under 4%, but in France, the position is even more dramatic. Mortgages are again at levels of around 2.8% to 3.2%. Interestingly, the French property market has not suffered to the same degree as in the UK. Whilst there has been some downward movement, many of the high quality internationally sought after areas such as the Cote D’Azur and Paris have shown higher levels of stability and basically kept much of their value.”
Data on house price movements in France is published by the State regulated Notaries. The figures for the Paris region give a hint as to the differing French and UK markets: Over the last year to 31 May, Parisian apartment prices fell back by just 5.9% compared to a fall of 17.6% for London properties in the year to June 2009.
The ability of the French property market to hold its value is due partly to lending policies of the banks. Tim Harvey continues, “Banks in France will always ask for a 20% deposit, although with leaseback properties, buyers can often use their VAT refund, so the loan can be virtually 100%. However, lenders will always look closely at affordability and the concepts of loans of greater than 100% or self certification mortgages are both unheard of.”
Whilst the fall in French mortgage costs will come as a relief to many homeowners, savers will not have greeted the news with the same level of enthusiasm, and many seeking an income in Euros are now starting to look at alternative lower risk investments such as Leasebacks to generate an income.
According to the UK portal Frenchleasebacks.co.uk, the volume of enquiries they have received has risen steadily since the end of March, despite the weakness in the value of the pound. Guy Stephenson, a spokesman for Frenchleasebacks.co.uk explains, “Property buyers looking for an income stream know that indexed returns of up to 5% are available in France today from leasebacks. Leasebacks differ from classic buy to let purchases in that the rental is guaranteed, as is the supply of tenants, so buyers do not need to worry about funding a euro mortgage, providing the loan is geared correctly.”
Leaseback purchases offer buyers in France a novel way of owning and managing property – with rental yields and tenants guaranteed and most having the option of personal usage, they are both a holiday home and an investment. With mortgage costs now less than rental yields in many areas, investments can show a positive cash flow from day one. Moreover, rental yields and capital values are usually indexed, providing useful protection against inflation.
With low mortgage rates, an arguably more stable property market than the UK and established alternative savings schemes such as leasebacks, France looks well placed to weather the current economic turmoil, both from as saver’s and borrower’s perspective.
Offshoreonline.ORG is a UK regulated specialist expatriate broker offering advice on French, Italian, Spanish and UK mortgages and pensions and savings for UK expatriates.
Offshoreonline .org pioneered the concept of the discount broker in the expatriate market when it started offering no fee deals on many popular offshore savings funds in 1998.
Overall, the company aims to bring high quality UK regulated advice and service to UK expatriates worldwide in the areas of pensions, mortgages and life cover. The company is UK regulated by the FSA for investment business, giving offshore customers the reassurance that they are dealing with a reputable organisation.
Nacelle press release 01 October 2009