Britons looking to buy a French holiday home will now find it harder to obtain a mortgage, as a number of French banks have tightened their lending criteria for non-residents in recent months.
BNP Paribas, one of the biggest banks for lending to overseas buyers, is restricting its lending further from next month, after overhauling its product range to non-residents at the end of April.
According to mortgage brokers, French banks are becoming more cautious about lending because of an increase in overseas borrowers struggling with their French mortgage repayments. As a result, banks are tightening criteria for products that lenders believe are the highest risk, such as interest-only mortgages, new-build finance and funding for investment properties.
“The products that are being withdrawn or changed are those that have been developed for the non-resident market and aren’t typically available to French residents in the domestic market,” says Simon Smallwood of International Private Finance, an overseas mortgagebroker.
John Busby, director at Athena Mortgages, a French mortgage broker, says he has seen a sharp rise in the number of people who had applied for a mortgage directly to a French lender that has subsequently fallen through.
“From the inquiries we’ve received over the past fortnight, it is clear that lots of borrowers have been caught completely off-guard by these changes,” says Busby.
He says French banks appear more reluctant to lend to non-residents. “We have access to a network of 50 top lenders in France, from international platforms to local branches, and at all levels we are finding more reluctance to lend,” says Busby.
He adds that French banks appear to be tightening up on affordability and the ratio of lending to gross income.
Traditionally, French lenders will only allow a maximum of 33 per cent of the gross income of the borrower to be set aside for loans such as mortgages. However, lenders are now refusing borrowers even though they meet this 33 per cent requirement.
French banks have also started adopting Basel III criteria, a global regulatory standard on bank capital adequacy and liquidity, which stipulates that total outstanding loans should be no more than six times the borrower’s income. Busby says these changes will particularly hit investors with large buy-to-let portfolios and first-time buyers.
However, mortgage brokers say BNP Paribas has made the biggest changes. In April, it cut the mortgage term on its interest-only products to non-residents from 20 years down to seven years. The bank also increased the value of assets that the borrower must have, excluding the main residence and properties outside the EU, from 120 per cent of the loan value to 150 per cent.
BNP Paribas is set to tighten criteria further from next month. It plans to reduce its maximum loan-to-value for interest-only loans from 80 per cent to 70 per cent. At the same time, it will cut its maximum loan-to-value for repayment mortgages to non-residents from 85 per cent to 80 per cent.
Clare Nessling of Conti, a mortgage broker specialising in overseas mortgages, says BNP Paribas’s last criteria change, which was introduced with no notice, left many unable to process their mortgage applications as they no longer met the stricter criteria. “We’ve had to place quite a few borrowers with different banks because of the tightening,” she says.
However, Nessling says there are still a large number of options for Britons looking to obtain a French mortgage. “We’re not seeing changes across the board and there are still a lot of lenders looking for business from non-resident buyers.” Smallwood agrees. “Attractive terms are still available for those looking to purchase either a primary residence or second homes. It is therefore not necessarily the case that if you’ve been turned down by one bank you will be turned down by all of them,” he explains.
Crédit Foncier is one lender that is expanding its focus on non-resident clients, while banks such as Crédit Lyonnais have maintained their criteria for non-residents.
French mortgage rates can still be as low as 2.70 per cent for a tracker, with a four-year fix available at 4.20 per cent up to 80 per cent loan-to-value.