French Mortgage rates in France during 2019 will remain at historically low levels. With French banks continuing to push lending to clients (both to French nationals and to foreign investors) the French property market is showing strong signs of recovery. During 2018 house prices in France continued to increase by +3.2% and housing sale transactions remained at 950,000, the highest level since 2006. Here we explain why 2019 really is becoming the best time to buy property in France.
Mortgage rates in France 2019
The French mortgage interest rates continue to remain at historically low levels and this has helped to keep the French housing market in a healthy state. In September 2018, the average interest rate on new mortgages in France fell to 1.51%. The French mortgage market has continued to remain buoyant, with the Banque de France reporting the annual growth rate of loans to individuals at +5.9% in September 2018.
The Banque de France has indicated that interest rates will remain stable during 2019. The EURIBOR (European Central Bank base rate) is still negative at -0.38%; and it is unlikely to rise before the end of 2018. They forecast some slight increases to around 1.55% by the end of 2019, due to pressure from increased rates from the US Federal bank and the drop off in Quantitative Easing by the ECB. They comment that "In view of this, lending rates are likely to rise over the coming quarters, although only moderately, as banks will not pass on the increase in market rates entirely because of strong competition among credit institutions" (Source: www.banque-france.fr).
Therefore, it is unlikely that French mortgage rates will increase before the midpoint of 2019, which is great news for borrowers. Furthermore, there are signs that French banks are willing to relax their mortgage lending criteria for non-residents by now taking into account Pension income and allowing greater consideration of rental income from other properties to support mortgage applications. Certain French banks are still offering a variable repayment mortgage at 1.24% and a fixed rate mortgage from 2.15%.
House prices in France 2019
With interest rates in France in 2018 at historically low levels, it is of no coincidence that the 12 months up to July 2018 saw more housing sale transactions than at any time in the last decade (950,000 house sales). In addition, the Notaires de France is predicting that these level of sales volumes will continue into 2019. In particular, they note that the new mortgage lending from the French banks remains high and 85% of banks report steady demand for home mortgages (Source: www.notaires.fr).
In terms of French house prices, the most recent statistics produced by body representing French Notaires, calculated that house prices rose by an average of +2.8% for apartments and +3.2% for houses up to November 2018 (Source: Notaires.fr). This headline figure does mask some regional differences in house prices in France, but history suggests that the long-term trend of property prices in France is definitely upwards. What is of particular interest is that the UK's Brexit decision does not seem to have a significant effect on the numbers of British buyers showing an interest in the French property market.
FNAIM, the professional body for real estate agents in France is forecasting house price increases of between 2.5 and 3% in France during 2019 (Source: FNAIM.fr).
From a long term investment perspective, the French property market is a fairly decent bet. The property market in France has proved over recent history that it is sufficiently robust and stable to withstand temporary periods of decline. This is mainly the result of the structure of the French mortgage market. In France, 84.4% of borrowers take out fixed rate mortgages, making the French housing market less prone to the sharp upturns and downturns of other countries. French property is also one of the most well-regulated markets in the world and as we outline below, structural factors in the way French mortgages are provided, also helps to reassure investors about the long-term future.
French mortgages 2019
So if you are tempted to buy property in France during 2019, how do you go about it? The French mortgage market is mainly made up of fixed rate repayment mortgages. This has always been cited as a major factor in helping to stabilise the French housing market. Floating-rate loans only make up 6% of new loans in France. The relative stability of fixed rate mortgages allowed the country's mortgage market to continue to grow even despite the crash of 2007. Over the past decade, the French mortgage market has expanded tremendously. According to the National Institute for Statistical and Economic Studies (INSEE), France has one of the world's largest mortgage markets and French mortgages have increased in value from 21% of France's GDP in 2000, to 44% of GDP in 2017.
It is not just the structure of the mortgage market, which provides grounds for predicting longer term growth in property prices. According to a study by Crédit Foncier, in the last 8 years due to the fall in mortgage interest rates, the average monthly re-payments for French mortgage holders fell by 22%, a saving of 140 euros per month. French property owners witnessed the fall in interest rates and queued up at their banks to renegotiate their fixed rate mortgages at a new lower rate (80% of mortgage holders who re-negotiated their mortgage terms remained with their existing mortgage provider). At the same time, the creditworthiness of French mortgage holders rose by 35%. The combined result of these two factors enabled the property purchasing power of French mortgage holders to increase by 29% between 2008 and 2016. According to statistics drawn up by the Banque de France, the 2 year period between 2016-2018, witnessed an unprecedented increase in the number of home loans granted, especially to first-time buyers.
So with a domestic market strongly placed to take advantage of the historically low interest rates and with the stagnant house prices in France showing signs of recovery, there is considerable grounds for optimism for a sustained recovery in house prices in France.
How to obtain a French Mortgage
French mortgages have some particular features that make them very attractive foreign house buyers. The Mortgage rates offered by French banks on residential property are typically lower than those in the UK and Ireland.
You can fix a French mortgage rate for as low as 2.15% for the lifetime of the loan, so any future interest rate rises will not affect your monthly payments. Also, most French mortgages have little or no early repayment charges. So if you are able to, you can pay off your mortgage early and benefit from substantial savings in interest, without any penalties.
French banks offer both fixed rate or variable rate mortgages (although as we have seen above, fixed rate mortgages are the preferred option). The banks generally lend up to 70-80% of the purchase price before tax. As a rule, to be eligible for a French loan, your debt ratio must be no more than 33%, i.e. all your monthly debt repayments should amount to no more than a third of your monthly income.
Variable rate mortgages are usually based on the Euribor (European Inter Bank Offer Rate) plus a loading. It is normal for applicants to be charged a fee by the lender, which is typically 1% of the amount borrowed. Most lenders will insist that the buyer undertakes a survey and takes out some form of life/disability insurance.
Also, International Private Finance report that a new French mortgage product has been launched during July 2018 which offers a capped variable interest only rate of 2.20%. The loan has a protection cap of 1% for the first 7 years. On a loan of €250k, the monthly payments would be €458 and as it’s a variable rate it also comes with no early redemption charge (source: www.internationalprivatefinance.com).
When buying a second home in France, there are three ways to raise the mortgage:
- against an existing property in your country, providing there is sufficient equity;
- against the French property;
- a mixture of both.
Mortgage on your main property
Raising capital against your principal property is usually the cheapest option. The mortgage funds are raised either by taking further borrowing on the current mortgage or by re-mortgaging to another lender. The fees involved are relatively small and the process is straightforward and familiar.
Taking a Mortgage on your French Property
Raising a mortgage secured against the French property allows buyers to purchase a property without putting their principal home at risk. Although the costs are higher, with low interest rates in France continuing during 2019, it could be an attractive option. There can also be tax advantages if you let out the property.
Raising money against your principal home and your French property is popular with purchaser who do not have large deposit in savings or who want to keep their savings intact. Basically, the deposit and costs are raised on your principal home, limiting the amount of equity; while the difference is raised against your French property.
Paddy Gibbins the Managing Director of Artaxa Immo, a French real estate business that specialises in helping Foreign investors buy French property, states that he has seen a growing trend in hybrid mortgages in France, whereby "investors raise money against their principal home and the French property". This is proving especially popular with purchasers who do not have a large deposit in savings or who want to keep their savings intact. Paddy explains that "basically, the deposit and costs are raised on the principal home of the purchaser, and the equity for the loan is raised against the French property".
French mortgage applications
When you approach a French bank for a mortgage you will need to supply all the following documents:
- Valid passport or identity card
- Telephone (land line) or gas bill or electricity bill
- Birth certificate
- Marriage certificate
- Bank account statements for the last three months
- Contracts and repayment schedules for all current loans
- Proof of principal residence (e.g. a council tax bill) or copy lease with receipt for last rent payment if you are lessees
- Copies of the last three wage slips - and the contracts if employed for less than 18 months
- Latest tax return or official statement of income at the end of the last year
- Proof of the amount of personal capital contribution to the purchase (e.g. savings account statement)
The bank will study your dossier and if all is in order, make you a preliminary offer. This normally takes about 48 hours. They will then send you documents for you to open an account with them (if you do not already have one) and also an insurance policy (together with health questionnaire) to sign. The bank account is a current account (for the purposes of transfers of money related to the loan). You are obliged to have a French bank account if you want to take out a French mortgage. The insurance policy is similarly obligatory. It insures the loan and must be signed and sent back at the same time as the offer document.
French Mortgage calculation
French Mortgage calculations vary between the lenders. Some have a higher minimum loan size or lower maximum loan value. Banks generally consider loans from between 65 to 85% of the value of the property. Generally French banks work on a principle that the total of the French mortgage plus any other borrowing or rent should not exceed a third of the buyer's gross monthly income.
French Mortgage charges
The bank charges for arranging a mortgage are usually:
- administration - a flat fee of approximately 1% of the loan amount.
- the cost of the garantie hypothecaire or mortgage registration - amounting to approximately between 1.5% and 2% of the loan amount.
- A mortgage broker will typically charge you either a flat fee (usually several hundred pounds/ Euros) or a percentage (around 0.75%) of your total purchase price. Artaxa Immo will organise your loan for no fee as part of their service.
Paddy Gibbins is the Managing Director of Artaxa Immo, a French real estate business that specialises in helping Foreign investors buy French property. The agency is based in the beautiful wine village of Magalas, but provides property buying and sales teams across the Languedoc region. Prior to setting up Artaxa Immo, Paddy was heavily involved in the Montpellier buy-to-let market.