3 July 2017
WHAT’S HAPPENING TO THE FRENCH PROPERTY MARKET POST-EU REFERENDUM?
FRANCE HAS LONG BEEN A POPULAR DESTINATION FOR BRITS LOOKING TO BUY PROPERTY ABROAD AND THE GOOD NEWS IS THAT THE DECISION TO LEAVE THE EU HAS NOT CHANGED THAT. BELOW, MIRANDA JOHN, INTERNATIONAL MANAGER AT SPF PRIVATE CLIENTS, DISCUSSES THE FRENCH MORTGAGE MARKET.
The consequences of Brexit for the overseas property market have so far been mixed, with some markets thriving while others are stagnant. Not all ski resorts have fared equally, for example, while Provence and St Tropez have proven to be more solid than much of the Côte d’Azur. Across the board the lower end of the market is subdued as those buyers are more sensitive to an ailing sterling/euro exchange rate.
My thoughts this time last year were that international lending would be on life-support for the many years it would take to extricate the UK from the European Union so the results of a survey recently carried out by BNP Paribas are most encouraging. This found that some 65 per cent of UK residents interested in buying in Europe claim Brexit has had no impact on their plans. This is particularly true of buyers in the €500,000 to €5m price bracket.
Euro mortgages continue to have wide appeal as rates are so low. Having debt against the property can also provide tax benefits and matches the currency of the liability (the mortgage) to the asset. Following the decision to Brexit, banks specialising in lending to British buyers have not fundamentally changed their lending policies but affordability is the determiner. Mortgage applications require full supporting documents and there is close scrutiny of bank statements with income very strictly assessed on what is visible on the past three years’ tax returns rather than any future/potential income or revenue on which tax has not been paid. Some banks have also introduced ‘stress’ tests to ensure that borrowers can withstand currency fluctuations.
There are considerable differences in the terms available depending on the type of property, location and size of loan. As well as high-street lenders there are private banks who will lend in prime locations, which has led to sharp pricing and a wide range of products not common elsewhere in Europe.
High loan-to-values of up to 80 or even 85 per cent are available. The lowest rates are always on a repayment basis, with interest only being offered by very few lenders and clients need a strong asset position to qualify. Long-term fixed rates of up to 25 years are generally how the French like to borrow so are very competitive. There are also variable products with no early repayment charges, while there are capped products in between offering protection should rates rise.
Private banks are relationship-driven so require assets to be pledged (usually €1m minimum) but as lending decisions are based on the overall financial position and future potential of a borrower they can be more flexible with even 100 per cent loans and very low margins. Typically, lending is over a shorter term – 5 or 10 years – but as standard on interest only. There are also no age restrictions or requirements for life assurance and more complicated ownership structures are usually acceptable.
There is a notable shift in terms of buyers’ priorities and it is lifestyle choice hands down over investment. Undoubtedly the finer points of Brexit will not be known for some time but buyers are returning to realise their dream home by the sea or on the slopes and almost one in four UK buyers who were looking specifically at France told Ipsos they have accelerated their project.