House prices and mortgage rates in France fall making that French dream home purchase a little bit easier for British buyers…
Brokers have reported that the cost of a French mortgage has fallen to an all-time low (September 2014). For British buyers this means that they may expect to pay a rate of just 3.1% on a 20-year mortgage, down from 3.75% this time last year.
French Private Finance, a firm that helps non-residents and expats buy French property, points to a deal on offer from French bank Caisse D’Epargne, which requires a deposit of only 20% – a low amount considering the interest rate.
John Busby, director of French Private Finance, says, ‘These are now officially the lowest rates we have seen for French mortgages this century or last.’
The difference in interest rates might seem esoteric stuff, but the actual sums of money involved are certainly solid. Taking a mortgage of €400,000 at that rate over 20 years would mean a whopping saving of €29,044.
So what’s driving down French interest rates?
Primarily rate cuts from the European Central Bank (ECB). They have been trying to revive the French economy by stimulating its housing market and the flow of investment, and are a key reason for these low mortgage rates. However, there has also been a withdrawal of investment from perceived risky targets. While investors are pulling their money from what they regard as a gamble they’re putting it in two main places: property, and bonds/government debt.
While property purchases obviously create upward pressure on prices, this hasn’t been sufficient to prevent French housing prices from actually falling, mainly because property investment is now also regarded as somewhat risky. Investment in bonds and debt has the effect of pushing down interest on government debt and there’s a knock-on effect on consumer rates.
That’s good news if your dream French home was previously just over your budget. But if it’s still not quite within reach, don’t despair: rates could still go lower. The ECB may follow Britain and America in ordering quantitative easing, to stimulate the economy and push down borrowing costs further. While the effects of quantitative easing have often been underwhelming, it does usually result in lower interest rates and some experts say there could be 3% mortgage deals soon.
Underlying all this is the potential for French property prices to fall. That’s because they’re technically overvalued on several key metrics, and because the French economy is currently too weak to keep them there. A study by the Office for Economic Co-operation and Development (OECD) found French housing prices were about 30% too high, against both rents and wages. The Economist conducted a study last month which also found that prices were around 30% too high. Now French housing prices are falling – even in Paris they’re down by 2%, and countrywide France saw a 1.2% annual decline last year.
Transactions in France are rising, and there’s increasing interest from British buyers, as you’d expect on the basis of these figures. Right now, brokers are reporting that British interest is focussed on more expensive areas like the Alps, the Cote d’Azur and Paris.
If you’re looking for a more affordable home in France, and your interest lies outside the premium areas that are currently the focus of overseas attention, 2014-2105 might be the perfect opportunity.
Read the full feature by Les Calvert of www.property-abroad.com
(25 September 2014)