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Last updated: April 13, 2012 7:12 pm
Britons looking to buy a French holiday home can secure cheaper mortgages today than they could last year, as lenders to non-residents have been cutting their interest rates.
Since the start of the year, three of the biggest French mortgage lenders – BNP Paribas, Crédit Foncier and BPI – have reduced their rates for UK purchasers.
Last month, BNP cut its variable rate mortgage deal from 3.55 per cent to 3.25 per cent, while Crédit Foncier reduced its 20-year fixed-rate mortgage from 4.45 per cent to 4.25 per cent.
These reductions follow a year in which lenders steadily raised the cost of mortgage deals and tightened their lending criteria, as the deepening eurozone debt crisis led them to reduce their risk exposure.
According to Simon Smallwood of International Private Finance, an overseas mortgage broker, French mortgage lenders have been cutting mortgage rates following falls in the cost of wholesale funding.
Three-month Euribor – the interbank lending rate in the eurozone, which is used to price variable-rate mortgages – has fallen from 1.58 per cent in November to 0.76 per cent this week.
“This is feeding through into the French mortgage market and reducing the mortgage costs for Britons and non-resident individuals looking to purchase property in France,” notes Smallwood.
John Busby of French Private Finance, a French mortgage broker, says the main beneficiaries of the recent cuts are homebuyers who started their mortgage applications at the start of the year.
“Those who began their applications recently on the basis of higher mortgage rates can now enjoy rates as much as 0.75 percentage points lower than November, due to the falls in the three-month Euribor and some reductions in bank margins,” he says.
For example, a borrower with a 20 per cent deposit can now get a 20-year fixed-rate mortgage at 4.25 per cent – 0.50 percentage points less than it would have cost in January.
Mortgage brokers say they have seen a pick-up in the number of mortgage enquiries in recent months as positive sentiment has returned to the French property market.
However, while mortgage rates have fallen, lending criteria are still strict.
Last year, a number of the major lenders to overseas buyers tightened the criteria they use for approving loans deemed “highest risk” – such as interest-only mortgages, equity release and funding for investment properties. Many banks also tightened up on affordability checks and the ratio of lending to applicants’ gross income.
“The banks have more or less adjusted to the new norm with no new radical changes,” notes Busby. He says borrowers need a deposit of 25 to 30 per cent to get an interest-only mortgage, compared with 15 per cent for a standard repayment mortgage.
Miranda John of broker SPF Private Clients says many banks are still not keen on self-employed borrowers or those who rely on bonuses and dividends. ”It still takes a long time to get mortgage applications agreed,” she says.
Clare Nessling of Conti, an overseas broker, agrees. “It is harder than it used to be,” she says. “Lenders want chapter and verse about your income and your outgoings but are still willing to lend. Borrowers just need to have their accounts in order.”
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