July 2008

Money market developments
The availability of mortgages, interest rates, and the price of houses continue to dominate the picture. Market commentary in the Anglophone world about banks withdrawing from the new mortgage market may leave you wondering whether it will now be harder to get a French mortgage. Best French Mortgage clients will not be subject to any mortgage rationing by French banks. French banks are continuing to make new mortgages available to creditworthy clients. The lower LTV you require, the better rate you will be offered. French banking regulations require clients to maintain an indebtedness ratio of one third or less, so taking a mortgage over a longer term or raising a slightly larger deposit can be helpful. As always in times of uncertainty, marginal applications may be looked at more carefully, but we have developed strong relationships with our partner banks. French banks trust Best French Mortgage to introduce creditworthy clients. Remember, as an honest French mortgage broker, we don’t charge our clients any fees for arranging mortgages. To find out what type of mortgage we could find for your French property project, just complete the no obligation application form.

The Fed lowered its interest rates dramatically in January in response to the US sub-prime mortgage crisis. The Bank of England made small downward adjustments in February and again in April. The UK authorities have a difficult line to tread between helping the housing market and industry and keeping the lid on inflation. Meanwhile the ECB rate remains steady for the time being, as we predicted.

Economic conditions in the USA demanded cuts in interest rates to avoid a recession in election year. The European banks don’t need to react so drastically. Some French mortgage rates have hardened, while long-term mortgage interest rates have actually fallen. Mortgages in France remain at lower rates than in the UK. We expect Euro rates to be lower than sterling rates for the foreseeable future. Contact us to see what type of French mortgage would be best for your project.

With so much uncertainty in the financial markets, sterling has moved down against the Euro. If you have Euro income, maybe from holiday lettings or your buy-to-let investment, repaying a Euro mortgage should be no problem.  If you are buying Euros we can help you get the best exchange rates by sourcing your Euros at money market rates – much cheaper than buying over-the-counter. Contact us to learn more about when and where to buy Euros for your French mortgage.

House prices steady

Last year, 2007, saw French property price rises of around 4%. Altogether, some 800,000 property transactions took place. French property remains a sound investment. Under the French system of house purchase, once you have seen the property you want and agreed the price with the vendor, there won’t be any surprises. After a 7-day cooling off period, both buyer and seller are locked into the sale at the price agreed whilst the Notaire completes the formalities. This means that you can apply for the mortgage you need with the confidence that it will be enough on the day and the funds will be available as promised.

Help with your French mortgage project
In France, Nicolas Sarkozy has reintroduced tax relief on mortgage interest payments. Interest payments on French mortgages on French principal residences now attract tax relief for the first five years of the mortgage. For a couple, tax relief applies to €7,500 interest charges – the cost of a €150,000 mortgage. If you are planning to live and work in France, Nicolas Sarkozy’s French mortgage tax relief measure makes a French mortgage more affordable.

If you are wondering about equity release from your French property, complete the application form and let us see how we can help you. If you have retired to France, and pay French taxes, you will be eligible for tax relief on your equity release mortgage.

Releasing equity from a French property you already own via a French mortgage could be the financing solution to completing the conversion of your outbuildings or clearing other debts.  French mortgage interest rates are lower than short term rates, so borrowing via a French mortgage will be you cheapest source of finance to finishing your French dream home.

The majority of French mortgages are fixed rate mortgages. Fixed rate French mortgages are fixed for the entire term of the mortgage, not just an introductory period. There are no unwelcome price hikes after two years. The best French banks partnering Best French Mortgage also offer capped rate mortgages, where the maximum change in interest rates is capped by 1 or 2 percentage points above the starting rate. For example, if you took a Cap 1 variable rate mortgage now, at 5%, you could never be asked to pay more than 6% however long the mortgage period whatever happened to interest rates. Contact us now if you would like to find out more about French fixed rate mortgages or if you would like to switch from an existing French variable rate mortgage into a fixed rate mortgage and reduce your monthly outgoings.

Buyer protection in France
In England & Wales Home Information Packs (HIPs) are now compulsory for all house sales. HIPs are very similar to the equivalent French dossier that accompanies all French property sales. Our recent article in leading French property magazine “French Property News” described the latest set of tests which apply to French gas supply. This article has been very well received. Further details about all French property tests are on our HIP page.

Under French law, if you rent out your French home the tenant is entitled to certificates about the property. This extends to holiday lets too, although the requirements are much less stringent than buy-to-let rental contracts. To comply with the French law on rentals, tenants should be offered an energy certificate and a “risks from natural hazards” report. Landlords offering seasonal lettings only can obtain a DPE (diagnostic performance énergétique) from qualified local inspectors, but they should make sure that they only commission a Class 6C inspection – the lowest requirement and least expensive.

The risks from natural hazards report (Etat des risques naturels et technologiques) covering floods, earthquakes and pollution can be compiled for free from publicly available documents. If you are short of time or French, Bureau de Contrôle Technique Immobilier (BCTI) will pull the information together for you. Reports can be ordered and paid for over the web.

French Mortgage Broker Industry Update
French banks rely on mortgage brokers to introduce serious clients. The cost of the introduction is included in the bank’s mortgage rates whether or not a mortgage broker is involved. You cannot get a cheaper mortgage rate by going directly to the bank. Often, it’s the reverse: special offers and negotiated conditions are only available through brokers. Best French Mortgage will always suggest the best French mortgage available taking into account your individual circumstances.

Some long-established French brokers have become accustomed to charging their own clients a mortgage arrangement fee or “dossier” fee. In effect, this means the client, you the borrower, is charged twice for the same service. Double charging came about because the mortgage broker was able to “help” the more marginal French clients secure finance. Go to our section on French mortgage broking charges for a fuller explanation  When traditional French mortgage brokers, some established more than 25 years ago, began to seek overseas clients they decided to maintain their double charging practice, with some lifting the arrangement fees even higher than the French borrowers are charged to pay for bi-lingual staff.
Best French Mortgage do not charge clients any fees. We are open and honest with our clients and with our partner banks.

The French financial services industry operates very differently to that in the UK and the USA. This is nowhere more true than the way that shopping around for the best deal can actually increase your mortgage costs by up to 2.5% of the cost of a mortgage: this can amount to a staggering €2,500 on a €100,000 mortgage. French banks only pay commission to the broker that first introduces a client to them, so by going first to a broker that charges its clients an arrangement or dossier fee you prevent any other, honest, broker from providing a no fee mortgage offer from any bank which has already been approached with the application to borrow. In France the role of the mortgage broker is to shop around for the best mortgage deal on your behalf so shopping around between mortgage brokers will not necessarily produce a better deal and may end up costing you money. The best strategy is to go to a reputable no fees broker in whom you have confidence and only consider shopping around other brokers if your first choice can't help and never go to a fee charging broker first.

Our advice is that you should be very sure that you are working with a reputable professional broker with a personal depth of financial sector experience and who is genuinely working in your best interests. Brokers who claim that they can get mortgages for everybody are looking to profit from the sub-prime sector too. The largest French brokers require their salesmen to reach a monthly quota. Time spent massaging sub-prime dossiers is not time spent looking after your application. Go to our Consumer Guide page for a simple checklist to keep you safe.

Our monthly French mortgage market trends report is reviewed and updated after each month's ECB (European Central Bank), BoE (Bank of England) and US Fed (Federal Reserve Bank) rate review meetings which are usually held mid-month. Because many of the trends reported on should be expected to run for longer term than a month our analysis and commentary will not necessarily change each month.

LMR, 11th July 2008

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