28 February 2012 - French Mortgage News | Partners News | Uncategorized |
Mortgage Rates Start to Fall…
French mortgage costs have started to fall in recent months providing a major boost to anyone who is currently considering using a French mortgage to finance the purchase of a second home in France. Furthermore, moves during the past week suggest that this trend could continue during the rest of 2012.
The cost of a French mortgage is determined by two key parameters. Firstly, the lender’s cost of raising funds, which is dependent on liquidity in the money markets; and secondly the margin that the lender charges to the borrower. Eurozone concerns had pushed up funding costs during 2011 as investors became more nervous lending money to each other and therefore demanded a higher return (interest rate) for doing so. This increased the costs many lenders had to pay to raise funds – thereby increasing mortgage costs for many borrowers.
French mortgage providers, along with those from across Europe, also became more cautious with their lending and increased the margins they charged their borrowers, particularly for interest only products. Many French mortgage products are linked to the Euribor index and the margin is the rate the borrower pays over this index.
The tide started to turn in November and December last year when the ECB cut the Eurozone base rate by 0.25% for two consecutive months (reducing the rate to 1.00%). At the beginning of November 2011 the Euribor 3 month index (on which may French variable rate mortgages are priced) was 1.58%. As of yesterday (27th February) this had fallen below 1.00% for the first time since 2010, reaching 0.997% – which is also below the official ECB base rate.
The Eurozone’s credit crunch was further soothed before Christmas with the launch of the ECB’s Long Term Refinancing Operation (LTRO). This allowed Eurozone lenders unlimited access to three year loans provided by the ECB. This has proved so popular that a second auction is in the process of taking place with the results due to be released on Wednesday 29th February.
These measures have ensured that French mortgage providers have been gradually reducing their starting rates over recent weeks. Furthermore those lenders who were first to increase their rates at the beginning of the cycle have also started to reduce the margins they charge their borrowers – reducing French mortgage costs further.
French mortgage providers still have a strong appetite to lend to borrowers who are looking to purchase a second home in France. In the expectation that Eurozone decision makers continue to get to grips with the Greek and the Eurozone debt crisis we expect further reductions in French borrowing costs during 2012.
The increased focus on growth leaves the door open for future interest rate cuts. As French property buyers and mortgage providers gain confidence we also expect competition to increase amongst the French lenders in their attempts to attract the most credit worthy borrowers. This process started just last week with one of the major French lenders to non-residents cutting their interest rates by between 0.2 – 0.4%.
To view the latest French mortgage rates click here – you can also ask one of the team about IPF’s rate update service to keep you updated with all the latest French mortgage rate moves.
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