As featured in the July/August 2013 edition of Your Mortgage magazine
La belle France
France remains the top choice for Britons looking for a home overseas. Clare Nessling explains why.
When it comes to a sound overseas property investment, France provides all the fundamentals. Borrowing costs have tumbled over recent months, and at the time of writing, mortgage rates are at their lowest in more than 60 years. Affordability has also been boosted by a slower property market which has been pushing prices down. And, of course, there’s the enduring appeal of easy access from the UK, better weather, and good rental yields. France also represents relative stability amid the global downturn. What’s not to like?
It’s no wonder, therefore, that France has topped the Conti hot spots list for five years, and accounted for around 45 per cent of enquiries received last year. According to the most recent Overseas Guides Company (OGC) Quarterly Index, there’s been a very noticeable resurgence in interest in European destinations, particularly France, which pulled in 24 per cent of information requests in the first quarter of this year. And a recent property hotspots report from currency exchange specialist HiFX also places France at the top of the list, accounting for 23 per cent of enquiries.
Knight Frank, the global property consultancy, says that there has been a measured but welcome change in the attitude of prime international buyers looking to buy property in France, despite the precarious state of the eurozone’s finances. The country’s announcement last year that property sales and ownerships taxes were likely to change, particularly for premium real estate, caused a bit of a buyer exodus and a short disruption in sales. But this caused prices to drop, which seems to be enticing foreign purchasers back to the market, along with the fact that the changes are less unfavourable than initially anticipated
Not only does France currently offer UK buyers the widest range of finance options in Europe for overseas property, it also offers the lowest available mortgage rates. At the time of writing, rates start at just 2.1 per cent for a variable deal, and 3.35 per cent for a 20-year fixed deal. And even better news for investors is that these are not just for people with huge deposits – they’re open to those with 20 per cent or more to put down, and there are deals starting at 3.05 per cent for people with deposits of at least 15 per cent.
French mortgage lenders have been cutting mortgage rates following falls in the cost of wholesale funding. But these historically low rates are also due to increasing competition between the French lenders, and they’ve been reducing their margins accordingly in order to attract foreign investors.
According to recent figures from FNAIM (The National Federation of Property Industry Agents), property price growth slowed to 0.8 per cent in France in 2012 and is set to fall by two per cent nationally this year. Standard and Poor’s and Morgan Stanley, however, both predict that prices will fall by five per cent this year and again next year, while UBS sees them dropping back by as much as 10 per cent in total with most of the slide coming this year.
But these are ‘average price’ statistics, and it’s important to remember that there many micro-markets within France which are bearing up better than others. And there are differences depending on the property type.
The Languedoc-Roussillon region, for example, recorded an overall 0.5 per cent increase with house prices up by 1.8 per cent in the fourth quarter of 2012, compared with the same period in 2011. The Ile de France saw prices increase by 1.5 per cent, but while apartment prices increased by 2.6 per cent, house prices dipped by 0.1 per cent. Champagne-Ardennes recorded prices increases for both houses and apartments, at 0.6 per cent and 0.9 per cent respectively, while Poitou-Charentes saw apartment values climb by 2.6 per cent but house prices slide by 5.6 per cent.
Generally speaking, however, French property prices generally remain well under UK averages, with plenty to choose from within a budget. In terms of sales, transactions fell by 25 per cent during 2012, and recent reports suggest that some owners are making considerable reductions to sale prices in order to attract buyers.
It’s all very well talking about bargain prices and historically low rates, but how easy is it to obtain finance? Although France has been weathering the global financial storm pretty well, French lenders have understandably become slightly stricter about whom they lend to, and they’re no longer relying on set criteria. It’s much more about the individual case and what/where you want to buy. But they’re still willing to lend, particularly if you can prove that you’ve got a sound financial profile.
This is one of the reasons why you should get your finances sorted out as early as possible, even if you havee not started looking at properties. You need to give yourself time to research the mortgage market, so that you can find the best possible deals and decide on things like whether a euro or Sterling mortgage will be more suitable.
Arranging the financial side of things upfront also means you’ll know how much you can afford, and this is fundamentally important. An ‘Approval in Principle’ (AIP), will do just that – it will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search. It will also prove that you’re a serious buyer and could make you better placed to negotiate price. And it costs nothing.
Be brave when it comes to negotiating price. Under current market conditions, people are keener to sell and therefore more likely to be receptive to offers lower than the asking price.
France offers the long-term property investor a wealth of opportunity. But it’s important to do your homework and take professional advice before committing to anything.