Fall in rates draws buyers to France

Wealthy borrowers are buying second homes in France after mortgage rates fell to the lowest level since the postwar period last month.

Mortgage brokers have reported an increase in the number of large loan deals being arranged on French property purchases over the past few months, driven largely by the low mortgage rates available. France has traditionally been the most popular location for British buyers of top-end second homes.

The average French mortgage rate fell to 3.30 per cent in September, according to official figures released last week by the Observatoire Crédit Logement/CSA. Rates were as high as 5 per cent in November 2008.

“Since the summer we’ve had a number of large transactions coming back to the €5m-plus market,” said Sean Adams, international manager of Savills Private Finance. “I’ve had four French deals on my desk in the past two weeks that are around the €20m [£17.5m] purchase price.”

He said the increase in the number of UK buyers and property investors purchasing French property was down to the cheap mortgage rates on offer from French lenders as well as the weak sterling, which made it more efficient for people to borrow in euros rather than transfer their pounds across.

“Based on the enquiries we’ve received this year, France remains the top location for Britons buying properties overseas, accounting for twice as much interest as any other country,” said Clare Nessling of Conti, the overseas mortgage broker.

Over 40 per cent of all Conti’s mortgage enquiries have been about France so far this year, followed by Spain and Turkey.

The demand for French mortgages is even greater at International Private Finance (IPF), the international mortgage broker, which said the country accounts for as much as 75 per cent of all its enquiries. Jo Cowling of IPF said it has seen a 14 per cent increase in enquiries for France over the past three months.

The French mortgage market has remained stable during the credit crisis, with banks and lenders showing a strong appetite for lending to foreign investors.

The majority of lenders are happy to lend around 80 per cent loan-to-value – and some offer up to 100 per cent of the value of the property, though buyers must borrow at least €300,000 and have minimum earnings of €90,000.

Buyers can get rates as low as 2.20 per cent, available up to 80 per cent loan-to-value, according to Nessling. Borrowers can choose between variable rates, capped variable rates and fixed-rate mortgages – which tend to be the most popular in France.

According to John-Luke Busby, director of Athena Mortgages, the French specialist mortgage broker, banks will offer different mortgage deals in different regions. Areas with the lowest capped and fixed rates include Bordeaux, Limousin and Poitou-Charentes. Borrowers can secure a capped rate mortgage – where the rate cannot go higher than 1 per cent over the pay rate – at 2.55 per cent for 15 years, available up to 80 per cent loan-to-value.

Mortgage brokers claim it is worthwhile opting for a long-term fixed-rate as the cost of remortgaging in France is much more expensive than in the UK. Each time a debt is registered at France’s land registry, the borrower gets taxed at 2 per cent of the value of the mortgage, said Adams.

Popular areas in France for wealthy buyers include Paris, the Riveria and the Alps. IPF said it has recently completed a mortgage for €1.32m on an interest-only basis secured against a property in the Cote D’Azur. The mortgage deal was a 3 per cent variable rate with BNP Paribas with a 0.30 per cent arrangement fee and a loan-to-value of 80 per cent.

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