16 November 2017
Why the Alps appeal to British buyers after a French bolthole
AS THE FIRST SNOW FALLS IN THE MOUNTAINS, MANY PEOPLE’S THOUGHTS TURN TO THE COMING SKI SEASON AND WHETHER IT’S FINALLY TIME TO BUY PROPERTY IN THE ALPS. MIRANDA JOHN, INTERNATIONAL MANAGER AT SPF PRIVATE CLIENTS, LOOKS AT WHAT YOU NEED TO CONSIDER.
When it comes to the French property market, there has recently been a surge of optimism, according to a report by Credit Foncier. Some 82 per cent of French estate agents feel confident about the future while 86 per cent believe the property market improved or stabilised between May and September. This is further borne out by figures earlier in the year when a Notaires de France report confirmed a historic high in the number of actual sales in May 2017.
So what of Brexit and its impact on British buyers? Since the EU referendum, sterling has had a bumpy ride, while the rate of growth in the UK economy has begun to slow. The limited progress made in Brexit talks so far is not helping generate confidence at home whereas the Eurozone as a whole has been improving with France in solid recovery. Political risk has receded with President Macron making real progress on the reform agenda and Chancellor Merkel back in office for another four years.
In terms of the outlook for eurozone interest rates, the European Central Bank is widely expected to start tapering the asset purchase program at some point in 2018. Borrowing costs are therefore likely to rise in the near future. Since 2012, French bond yields and mortgage rates have more than halved and are at historically low levels. Matching the currency of the asset and debt is generally advised and French banks prefer to lend on long-term fixed rates so borrowers typically lock into a 20 or even 25-year mortgage. With low rates and the probability that interest rates will rise, a long-term fixed mortgage shields borrowers from fluctuations in monthly repayments.
Variable rates tend to be only fractionally lower than fixes, while offering no protection if rates rise. Borrowers may have an aversion to the early repayment penalties that come with fixed-rate mortgages but these usually amount to six months’ interest, which is a modest sum considering current rates and to gain long-term protection from rate hikes. For higher value property (€1.3m-plus) taking out debt always makes sense to offset the Wealth Tax that would otherwise be payable. Macron’s government has reformed Wealth Tax (as of January 2018) and it is now IFI (impôt sur la fortune immobilière) rather than ISF (impôt sur la fortune) as it is focused on real estate. Mortgages must be secured on the property itself to offset this tax and lending is only available through French banks or for higher values via private banks mainly in Monaco, Luxembourg or Switzerland.
Brexit does not seem to be a barrier to realising a dream and may even explain why the mortgage take-up by cash buyers is on the increase.
Do get in touch with any overseas financing requirements you may have.