Is a mortgage a good option for British buyers in France?
Conditions for mortgage borrowers in France remain very favourable thanks to the election of President Macron, so is a mortgage a good option for British buyers?
Written by Simon Smallwood, founder and joint managing director of International Private Finance
It’s been a tumultuous 18 months…
By now, you probably do not need reminding that the year 2016 was somewhat tumultuous. From a spate of untimely celebrity deaths to a succession of terror attacks in Europe, negative headlines filled our newspapers with monotonous regularity. Meanwhile, in the world of politics, a number of unexpected events affected the geopolitical stability of the western world, not least the result of the Brexit referendum and the election of Donald Trump as the president of the United States.
Such political developments unleashed a wave of uncertainty through international financial markets, and many feared that the repercussions on our finances would be severe and widespread. House buyers in Europe were among those who were put on guard, with experts predicting interest rate hikes, originating in the United States and spreading across the Atlantic.
However, we can now say with some certainty that such predictions were misjudged. As we enter the second half of 2017, conditions for mortgage borrowers in France remain extremely favourable.
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What effect did Macron’s election have?
Certain events have served to calm the anxiety of the markets since the turn of the year. Chief among those has been the outcome of the French presidential election in May 2017. The appointment of Emmanuel Macron as France’s new president on 14 May was met with a sigh of relief across European markets. The 39-year-old, who previously held a position at Rothschild’s bank, is expected to focus on ensuring the continued recovery of the French economy, which remains Europe’s third largest in terms of GDP. The emergence of the pro-business, economically liberal Macron has reassured the markets and removed the uncertainty that had been building towards the end of François Hollande’s term and in the lead-up to the elections.
Macron’s ascent has also been good news for British buyers of property in France. For over a year now, mortgage rates in France have been at, or near, historically low levels and, with confidence restored to the markets following the elections, they are not forecast to rise in the near future. With the summer historically being the busiest time for British buyers embarking on property viewing trips in France, mortgages are available to fix at as low as 2.15% over a term of 20 years. Lower rates are available over shorter terms and if an investment is made with the lender.
Taking a French mortgage out with such low interest rates not only means that it will be relatively affordable to service, but it also reduces the initial outlay on the purchase.
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Is a euro mortgage a good option for British buyers?
Some British buyers have understandably been put off buying in France since the pound weakened against the euro in the aftermath of the Brexit referendum. However, for buyers who were once considering a cash purchase, taking out an affordable French mortgage is a very viable way to protect yourself against the need to transfer a hefty amount of sterling savings into euros at the current unfavourable exchange rates.
What’s more, there are plenty of flexible mortgage products currently available for British buyers in France. These are the perfect solution for buyers who hope that the pound will once more strengthen against the euro over the coming years.
As and when the pound recovers, a mortgage with no early redemption penalties will allow the British borrower to purchase euros at a more favourable rate and use them to pay off a chunk of the outstanding capital. As previously explained, this option is proving particularly popular at the moment because of the low mortgage rates being charged by French banks.
What effect have new European mortgage regulations had?
Recent European-wide changes to mortgage regulations are also having an impact on British borrowers in France. A body of legislation, known as the Mortgage Credit Directive (MCD), is currently being imposed on lenders throughout Europe. Although designed to guarantee better protection for consumers, the MCD is obliging banks to tighten their lending criteria and internal procedures in order to ensure that they are compliant. This means that, in many cases, it is actually becoming more arduous and time-consuming for borrowers to access the mortgages they require.
In the UK, the European MCD initiative was foreshadowed by the Mortgage Market Review in 2014. This review resulted in a similar tightening of the rules, and UK banks had to get used to being subject to much stricter lending regulations. In response, many of the banks have turned to mortgage brokers, recognising the advantages associated with receiving applications that have been previously vetted by an expert intermediary.
The same trend can now be seen on the French market. Although a directive like the MCD is put in place to protect borrowers, the increased documentation required places a greater burden on the banks and the subsequent delays can be frustrating for clients taking out a French mortgage.
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Why is a mortgage broker a good idea?
For both parties, it therefore makes sense for the borrower to employ the services of a specialist French mortgage broker. The broker is able to pre-assess a mortgage application and to ensure that it meets the new criteria, in terms both of its financial strength and of the supporting documentation that is now required by law.
In this way, the broker’s intervention can significantly speed up the mortgage application process. A good French mortgage broker will have direct lines to dedicated underwriters at the different banks, thereby offering a fast-track service to ensure that the application is dealt with as quickly as possible. French bureaucracy has never been known for its speed or efficiency, and the introduction of the MCD is only serving to increase the paperwork involved in raising finance. Having an expert, French-speaking broker on hand to reassure the borrower and liaise with the bank is proving more valuable than ever.
Are French banks still keen to lend to British buyers?
The last 18 months have seen a series of events and changes with a direct impact on the French mortgage market. However, the good news is that none of the recent developments has done anything to dampen the enthusiasm of French banks for lending to British clients. For many years now, the popularity of France as a destination has meant that British buyers have been an excellent source of business for lenders across the Channel. And they are not willing to see that business slip away now.
It can sometimes be too easy to be overcome by individual events and lose sight of the bigger picture. The result of one referendum could never be so powerful as to dissuade British buyers from wanting to purchase a property overseas. Instead, we have seen that people are far more interested in getting on with their lives and chasing that long-held dream of owning a property in France.
As long as there is demand, French lenders will continue to make sure that taking out a French mortgage remains one of the most astute and affordable ways of securing that purchase. There is no reason not to pick up the telephone today and find out what options are available to you.
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