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Its Now €30,000 Cheaper To Buy A Home In France

News Posted On: 24 September 2014

French property news

Brokers are reporting that the cost of a French mortgage has fallen to an all-time low. British buyers can now expect to pay a rate of 3.1% on a 20-year mortgage, which has fallen from 3.75% a year ago.

French Private Finance, a firm that helps non-residents and ex-pats buy French property and manage their property in France, points to the deal on offer from French bank Caisse D’Epargne, which requires a deposit of only 20% - low for such a low interest rate.

John Busby, director of French Private Finance, says, ‘These are now officially the lowest rates we have seen for French mortgages this century or last.’

The difference in interest rates might seem esoteric stuff, but the actual sums of money involved are quite solid. Over 20 years paying back a €400,000 mortgage, the new interest rates would mean saving €29,044.

So what’s driving down French interest rates?

The falls have been propelled by rate cuts from the European Central Bank (ECB), which has been trying to revive the French economy by stimulating its housing market and the flow of investment. However, there has also been a withdrawal of investment from perceived risky targets. While investors are pulling their money from what they regard as gambles they’re putting it in two main places: property, and bonds and government debt.

While property purchases obviously create upward pressure on prices, this hasn’t been sufficient to prevent French housing prices from actually falling, mainly because property investment is now also regarded as somewhat risky. Investment in bonds and debt has the effect of pushing down interest on government debt and there’s a knock-on effect on consumer rates.

That’s good news if your dream French home was previously just over your budget. But if it’s still not quite within reach, don’t despair: rates could still go lower. The ECB may follow Britain and America in ordering quantitative easing, to stimulate the economy and push down borrowing costs further. While the effects of quantitative easing have often been underwhelming, it does usually result in lower interest rates and Mr. Busby expects 3% mortgage deals soon.

Underlying all this is the potential for French property prices to fall. That’s because they’re technically overvalued on several key metrics, and because the French economy is currently too weak to keep them there. A study by the Office for Economic Co-operation and Development (OECD) found French housing prices were about 30% too high, against both rents and wages. The Economist conducted a study last month which found that prices were around 30% too high. So French housing prices are falling – even in Paris they’re down by 2%, and countrywide France saw a 1.2% annual decline last year.

Transactions in France are rising, and there’s increasing interest from British buyers, as you’d expect on the basis of these figures. Right now, brokers are reporting that British interest is focussed on more expensive areas like the Alps, the Cote d’Azur and Paris.

If you’re looking for a more affordable home in France, and your interest lies outside the premium areas that are currently the focus of overseas attention, this year might be the perfect opportunity.

Written by Les Calvert of - overseas property reporter

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