French Property & Mortgage Watch – October 2009

• French property prices rise by 0.1% during September
• Prices now 2.8% higher than six months ago
• Number of French mortgage enquiries through Athena up 21% Q3 on Q2
• French mortgage completions at Athena Mortgages up 14% Q3 on Q2

Similar to the UK, the French residential property market is continuing to show signs of stabilisation. While prices* fell by 1% during Q3 as a whole, they rose by 0.1% during September, resulting in a total positive return for the period April to September 2009 of 2.8%. Returns for the 12 months to September 2009 have now pulled back to a respectable -7.8%.

Unlike the UK, however, a history of prudent lending in France (lenders do not allow borrowers’ total outgoings on finance payments to exceed one third of their total gross monthly income) has meant mortgage finance is still readily available.

While mortgage finance in the UK remains extremely difficult to secure, especially at higher LTVs (Loan to Value Ratio), the French banks continue to lend to borrowers with smaller deposits, even up to 100% LTV. This level of LTV is also available to non-resident borrowers both for second homes and investment properties and is proving highly attractive given the ongoing weakness of sterling.

Interest in the French property market among UK-based investors is soaring as a result. In Q3 2009, Athena Mortgages saw a 21% rise in mortgage enquiries on Q2, which in turn was up 42% on Q1. Mortgage completions in the third quarter were also up 14% on Q2. Many British property investors are now looking across the channel to add to their portfolios given the difficulty securing (competitive) finance at home.

The buy-to-let sector in France is attracting particular interest from investors at present, as depressed prices are boosting yields significantly in many areas. In the Normandy town of Alençon, for example, gross yields are 7.5%, while in the medieval town of Poitiers, western France, they are currently 7%. Nevers in central France boasts the highest gross yields, currently, of 7.6%. Other towns of note include Clermont Ferrand (6.8%) and Tours (6.4%).

For second home buyers, now is an ideal time to buy into some of the most desirable towns and cities of France at significantly discounted prices. For example, prices in the highly sought-after destinations of Biarritz, Cannes, Perpignan and Nice are all approximately 10% lower than a year ago.

A growing number of UK investors are also placing French leaseback properties into SIPPs, something that can be arranged through several French lenders. To this end, Athena Mortgages is currently working closely with French tax specialists, Sykes Anderson, and Liberty SIPP.

John Luke Busby, director, Athena Mortgages, comments: “There is a degree of correlation between the UK and France, at present, in the sense that both property markets are clearly stabilising. However, while the UK property market remains very difficult for investors to access given ongoing lending constraints, there is now a real appetite to lend among the French lenders, who have suffered much less than their British counterparts. For a growing number of British property investors, France is fast proving the place to be, particularly given the availability of 100% mortgages, which circumvents the punitive exchange rate.

“Crucially, there is also significant innovation at the product level. For example, we have recently launched a ‘next generation’ hybrid mortgage product in conjunction with a major French bank. With a typical rate of 3%, the new product enables borrowers to split their mortgage amount into an interest-only portion and a repayment portion, which represents a perfect balance between the potential shortfall of a capital repayment loan and the speculation of the interest-only route.

“With extremely competitive borrowing rates, attractive prices and genuine product innovation, there’s a real buzz to the French property market at present.”

Source: *FNAIM

For second-home, leaseback, buy-to-let and equity release mortgage products, visit the Best Mortgages section of the Athena Mortgages website or call + 44 207 474515.

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