Positivity pays

As featured in the December 2013 edition of French Property News

If you’re delaying the decision to buy overseas, you might like to know that France is once again top of the property hotspots list, says Clare Nessling.

More and more of us are seeking a little slice of life overseas and it appears that France is drawing in more British property buyers than anywhere else. The country has accounted for 43% of enquiries received by mortgage brokers Conti so far this year, taking the coveted top spot for the fifth year running.

Accessible, safe and familiar, it pretty much offers everything today’s buyer is looking for. Borrowing costs have tumbled over recent months, and at the moment 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. Plus, of course, there’s the enduring appeal of easy access from the UK, better weather, and good rental yields. With a defiantly dynamic property market, France also represents relative stability amid the global downturn. Quite simply, it’s a great place to buy a property.

Market movements

According to FNAIM , the French real estate federation, there was a 3.6% decrease in prices in France in the first half of this year, compared with the same period in 2012. The property market often shows contrasting trends, of course, and therefore the averages might not reflect the true picture. For example, prices were down by 3.8% in the provinces, yet up by 2.7% in the Ile-de-France, and prices are generally much lower in rural areas.

The consensus amongst estate agents, however, is that the downward property slide is not as bad as expected and buyers are in a strong position, not just because of lower prices. The slow nature of the market at the moment means that vendors are likely to be receptive to some price negotiation.

The sluggish nature of the current property market has led to President Hollande attempting to kick-start it, by reducing the capital gains tax threshold for owners of second homes. The taper relief for full exemption was doubled from 15 to 30 years under Nicolas Sarkozy, but this was partly to blame for the French property market stagnating and the number of international buyers decreasing.

As of September this year, the time limit for full exemption has been reduced to 22 years and it’s hoped that this change will encourage owners who have been hesitating about selling to bring their properties to the market. It’s also good news for prospective buyers as there will be a greater choice of properties and prices should be good too due to increased competition.  

Obtaining finance

It’s no secret that France has weathered the global financial storm pretty well, but that doesn’t mean that French lenders have been resting on their laurels. Quite understandably, they’ve become a little stricter about whom they lend to, and they’re now judging each case on its own merits including what and where you want to buy, rather than relying on specific criteria as they have done in the past.

This is a sensible attitude in the current environment as the last thing they want is for someone to take on more than they can afford. That said, they are still willing to lend, particularly if you can prove that you have a sound financial profile, and they’ll require more details about your income and outgoings, so it’s important to have your accounts in good order. Lenders will also use the debt-to-income ratio, which establishes whether you can afford to maintain the mortgage repayments.

Your existing liabilities, including any UK mortgage or rental payments, loans, and credit card payments are taken into account, together with the proposed overseas mortgage payments. The general rule is that the total of these should not exceed one third of your gross monthly income.

We always recommend that a prospective buyer obtains an ‘approval in principle’ before committing to a property purchase. This costs nothing, but will tell you up front about how much you can borrow, and therefore what price range you can realistically consider. It will also prove to vendors that you’re serious about buying.

Mortgage types are pretty similar to those available in the UK, so there’s usually a good choice of capital repayment or interest-only options, and rates can be fixed, capped or variable.

Generally speaking, a bigger deposit will result in a more competitive rate, but as it’s quite a sophisticated (and stable) market, even mortgages with a higher loan-to-value rate are fairly good at the moment.

It is preferable for an overseas mortgage and the income used to service the mortgage repayments to be in the same currency, thus avoiding exchange rate issues. And if you have plans to pay off your mortgage early, you should check what the redemption penalties are on any mortgage deals on offer, particularly fixed-rate ones.   

When it comes to mortgage deals, France offers the widest ranges of options in Europe for UK buyers, as well as the lowest available rates. At the time of writing, rates start at just 2.1% for a variable deal over 10 years, and 3.75% for a 25-year fixed deal.

Unlike many countries, where the best rates are limited to those with the biggest deposits, both of these deals are available for mortgages of up to 80% loan-to-value. For buyers with deposits of at least 15 per cent, there are a range of deals available, which starts at just 3.05%.

Priced-out buyers

Another trend we are seeing at the moment is that many British buyers are exploring overseas opportunities in their search for better investment potential than they’re seeing in the UK.  In France, for instance, property prices generally remain well under UK averages with plenty to choose from within any given budget.

Even some first-time buyers are opting to purchase property in France after finding themselves priced out of the UK market. The shortage of properties in the UK is an issue, but so too are the larger deposits which are now required. On top of that, lending criteria has become tighter so it’s really no surprise that some young buyers are considering moving their money abroad in order to get a foot on the housing ladder.

Their affordability is being further boosted by the stronger pound. At the time of writing, the value of sterling has risen against the euro to €1.18, up from just €1.14 a few months ago, and this difference is quite significant when you translate it into property prices. It means that for someone considering a home worth €200,000, the property now costs £169,492 compared with £175,439 at the start of August. A saving of £5,947!

Happy Endings

After waiting for a year or so while the eurozone crisis played out and the changes to taxation were being decided, buyers are starting to realise that things will pick up and that they could miss out on the best deals if they keep waiting. The French mortgage market is in good shape with lenders reporting increased levels of pipeline completions, and buying conditions at the moment for UK buyers are very good indeed.

It’s vitally important for buyers to seek the right advice. You should always go through the same process that you would follow if you were buying a property in the UK. It is usually advisable to take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer. It’s essential that they confirm to you that all required permissions have been obtained.

 French Mortgage Tips

 Obtain an ‘approval in principle’

This will confirm you can obtain the necessary funds before signing on any dotted line and prove to sellers that you’re a serious buyer.

Tell your lender if you intend to rent out your property

A percentage of the rental income can be taken into account by the lender when calculating how much they are willing to lend you, so be sure to let them know your intentions from the start.

Consider fluctuations in the exchange rate

It is generally advisable for an overseas mortgage and the income used to service the mortgage repayments to be in the same currency, to avoid any exchange rate issues.

Factor in additional costs

Bear in mind that bills don’t end at the asking price. Lawyer’s fees, local and national taxes, insurance, and so on can often add at least a further 10 per cent to your property purchase.   

Seek professional advice

Consider taking independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.

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