As featured in the March/April 2014 edition of Your Mortgage magazine
When it comes to overseas property investment, France continues to offer a safe haven for British buyers. Clare Nessling explains why.
Accessible, safe and familiar, France pretty much offers everything today’s buyer is looking for. Mortgage rates are currently at their lowest in more than 60 years and a slower property market has been pushing prices down. Easy access from the UK, a familiar culture and good rental yields are also very appealing to British buyers. Not forgetting the better weather too, of course.
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.
Too good to be true? You could be forgiven for thinking so, but this timely combination of excellent buying conditions is too good to ignore. That said, it’s imperative to do your homework and to take professional advice before committing to anything, and you should always go through the same process that you would follow if you were buying a property in the UK.
Prices to fall in 2014
According to FNAIM , the French real estate federation, French house prices are likely to fall by as much as four per cent this year, having dropped already by 2.9 per cent in 2013, and transactions declined by 5.1 per cent last year to a four-year low. Buyers were deterred by unemployment, taxes and regulations, and the federation says that there is currently a ‘wait and see’ attitude among clients because of fears about the future and uncertainties about growth and unemployment.
The sluggish nature of the current property market has led to President Hollande attempting a kick-start, 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 last 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.
British buyers, therefore, are in a strong position, and 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. When it comes to prime property Knight Frank, the international property firm, says that many buyers have been motivated by the fact that prices are a seven-year low in some regions and many are starting to see buying opportunities. And with the cost of borrowing at historic lows, many sterling purchasers are financing their acquisition with a euro mortgage as a way of mitigating any future fall in the euro.
France may have weathered the global financial storm pretty well, but that doesn’t mean that its 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.
That said, they’re 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.
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.
It’s 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 this can work very well if you intend to rent your property out and receive the income in euros. 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.
At the time of writing, mortgage rates start at just 2.1 per cent for a variable deal over 10 years, and 3.75 per cent for a 25-year fixed deal. And 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 per cent loan-to-value.
Budgets boosted by stronger pound
Buyers’ affordability is being further boosted by the stronger pound. At the time of writing, the value of sterling has risen against the euro to €1.21, up from just €1.14 last summer, and this difference is quite significant when you translate it into property prices.
It means that for someone considering a French home worth €200,000, the property now costs £165,289 compared with £175,439 at the start of August 2013. A saving of £10,150.
Always take advice
After sitting on their hands 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 they could miss out on the best deals if they keep waiting. And mortgage rates may start to rise again this year.
But it pays to be careful. It may be a buyer’s market, but you must choose very wisely and seek the right advice. There’s nothing to be gained, and everything to lose by cutting corners and failing to carry out due diligence.
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’s 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
Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.
Clare Nessling is Director of Conti, the overseas mortgage specialist.
Tel: 0800 970 0985
French mortgage best buys available through Conti
Rates correct as at 20/1/14. All product specifications will depend on individual circumstances. The table shows a small selection of the deals currently available and should be used as a guide.