The mortgage market in France

Kop-Munt,  Saturday, 9 September 2017

Languedoc Montolieu 

The French housing market is doing well, and therefore the mortgage sector is doing well. Although interest rates have risen marginally earlier this year, many home buyers want to take advantage of the still very favorable rates in Europe. More than 907,000 houses were sold between May 2016 and May this year, a larger increase than expected.

One of the reasons for this is the Brexit: many property investors who traditionally opt for the United Kingdom have shifted their focus to France. The super-rich, according to the trade journal Mortgage Introducer, leave London for what it is and aim their arrows at Paris and the French Riviera. The average square meter price in Paris rose by 5.5 percent to € 8,450 in the space of a year, according to Notaires de France, the French association of notaries.

Increasing appetite to buy a house

But France is not only interesting for the very wealthy, but the upper-middle class also chooses to purchase houses in France. French banks like to lend out money, and anyone who also places assets with the bank will be able to obtain a 100% mortgage of the value of the home without any problems. Sales agents confirm that the past skiing season saw a sharp peak in the number of foreign home buyers.

Demand is not only coming from outside, but also from the French themselves. In 2008, 60 percent of French households still had an own house, but now it is two out of three. A significant proportion of the French are buying new homes: the number of new homes in France rose by 20 percent last year compared to the previous year, 258,600 new homes were built.

The French mortgage market is the third largest in Western Europe, after Germany and the United Kingdom. At the end of 2016, data from the European Mortgage Federation (EMF) show that mortgage debt totaled more than EUR 899 billion. This is an increase of 3.8% compared to the previous year.

Low-interest rates and long term fixed-interest periods

Although house prices stagnated at the beginning of this decade, the mortgage market has hardly suffered from the financial crisis. The French mortgage market has remained stable because French lenders have always been strict: rigorous ex-ante inspections result in good mortgage portfolios.

Four out of five French houses are bought with a mortgage. Loans have an extended fixed-interest period - and with interest rates that sometimes fall below 2 percent, this is understandable. Banks calculate an average of 2.15 per cent for a 20-year fixed-rate period - the most popular fixed-rate period in France. This rate is usually available when the Loan-to-value is 80%. According to the EMF, the average Loan-to-value is 83%.

The mortgage path

The French mortgage path can sometimes take weeks, with an average of approximately three weeks. But two-month routes are no exception. Once a mortgage offer has been made, customers are legally obliged to wait ten days before accepting the offer. Since the introduction of the Mortgage Credit Directive in March last year, EU lenders have had to give customers at least two weeks to think. This contributes to the fact that home buyers start a mortgage process at an early stage.

Whereas in rural areas the real estate agent still wants to refer a house buyer to the local bank for a mortgage, the vast majority of applications are made through mortgage advisors. In France, mortgage advisors are tied to a particular mortgage provider. AXA advisers are, for example, associated with the insurer AXA. The independent mortgage broker is on the rise in France. Mortgage advisors usually get a commission from the lender, but can also ask a commission from the buyer. Sometimes there is a separate fee that has to be paid for the services provided, even if a mortgage is rejected.

France has over 400 lenders. Cooperative banks hold more than half of the market, while regular banks account for about two out of five mortgages. The rest is in the hands of specific players. Depending on the income and family composition of the home buyer, and the location of the property, the government can provide those who take the first step on the housing market with a loan at 0% interest rate that can cover up to 30% of the value of the property.

Creative Commons-Licentie This article of is subject to a license. Based on . Translated from the Dutch language by Jos Deuling.  

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