26 March 2018 - French Mortgage News | International Mortgage News | Partners News |
Keep that Spring in your step. French Mortgage rates are predicted to rise…
…but they aren’t leaping up any time soon and the French mortgage providers are starting to flex their lending criteria to attract more non-resident lending
With the Brexit transition agreement all but signed, it’s time to take stock of what is happening in the here and now, rather than in 2020 and beyond. It didn’t get much news but on 8th March the ECB indicated their bond buying programme wouldn’t be extended. The key is that the ECB has dropped the language about doing more if the economic and financial conditions worsen. As one commentator on the BBC put it “It’s a tacit acknowledgement that the economic outlook in Europe is rosier than it was”. This isn’t to say that it’s a guarantee, there are still uncertainties around the results of German and Italian elections and subsequent ruling coalitions, and Brexit is still on the horizon but the general trends in the US and UK (and elsewhere) are that the markets have underestimated the interest rate rises that are likely to be required in the coming months and years.
This could therefore be the case in the Eurozone and specifically in France. As we mentioned earlier in the year, the conversations we have had with the main lenders to non-residents is that they expect to see a French mortgage rate rise in 2018, even though the ECB itself felt that it wouldn’t raise interest rates until April or June next year. The reason for this is that in part, French and European mortgage pricing (as is the case in the UK) is based on future expectations for interest rate movements. The good news is that both the retail banks and the ECB have said that any rate rise would be a slow and very gradual one.
On top of this, there is even less of a reason to worry if you are considering taking out a French mortgage to purchase on the Continent as French mortgages have natural product features that protect borrowers. For example, it is possible to currently fix a mortgage rate for as low as 2.15% for the lifetime of the loan (and subject to your personal circumstances, that can be up to 25 years), so any future rises will not affect your monthly payments, or the length of the mortgage contract. Likewise, there are some fantastic capped variable rates on offer, which allow you to take advantage of the very low initial rate and protects you from any large rises in the future.
Another key feature of French mortgages is, unlike in the UK, there are little or no early repayment charges. So if the rates rise too much for your liking, you can, if you have the means, pay off your mortgage early. Typically, fixed rates have an ERC of around 6 months’ worth of interest, whereas the capped and variable rates don’t have any ERCs. Moreover, in France, the repayment products work differently to the UK, and the banks will often increase the term of your mortgage, rather than increase your monthly payments. They do this to minimise defaults, as most borrowers can afford to pay for longer, but find it harder to cope with a sudden increase in the monthly payment. Lastly, there are the interest-only products. These will keep your monthly payments down, due to the simple fact that you aren’t paying down any of the capital, so there is an argument, depending on your financial situation that you would be able to absorb any short-term rate raises more easily. Do check out our video guides which explain about the different products on offer in more detail.
And if all of this wasn’t enough, there is more good news for potential borrowers from the main lenders. At recent meetings they have indicated to us that, after examining risk profiles, they are looking to loosen certain criteria, which should allow more people to be eligible to take out a French mortgage. Specifically, those non-residents that have an existing property portfolio and several mortgages have, in the past been penalised as any rental income from these properties would have been heavily discounted by the banks. Going forward, those of you with a BTL portfolio will be able to count more of your rental income to offset the debt. There are also indications that the lenders will look more favourably on pensions, even if you have not begun to draw down on them and lastly you are now able to, subject to certain conditions, re-finance an existing interest-only mortgage onto a new interest only mortgage. (In the past you could only move onto a repayment product). Add onto this a hint that they may also increase their maximum loan-to-value upwards of 85% and you have a recipe for a very cost-effective method of financing your holiday home or permanent move to France, whatever the economists say!
For a personalised illustration, and for a thorough assessment of your current eligibility for a French mortgage, please complete our online form or give us a call on +44 (0)207 484 4600
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