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Fixed Rate Mortgages in France Now Under 2%

Friday 03 April 2015

Mortgage rates continue to fall in France, and there are no signs that the attractive fixed rates on offer are going to end in 2015.

Last month best mortgage rates in France for a 20 year loan fell to 2.40%, their lowest since the 1940s.

If you are willing to take out a shorter 15 year loan, then it is possible to obtain a loan for around 2.15%, and for 10 years the best loans can be had for less 1.90%.

According to the Observatoire du Crédit Logement, mortgage rates have fallen for 12 months in succession and are now less than half they were in 2008.

These excellent loan rates are of course due in the main to the fall in the rates from the European Central Bank (ECB), with banks now able to borrow for almost nothing.

The announcement by the ECB in January to inject €100s billions into the market, inciting banks to lend, will only serve to maintain rates at a low level, at least for 2015, and into 2016.

As that action in turn has meant a fall in the value of the euro, international buyers of French property are able to benefit from both lower rates and an improved exchange rate.

There has also been a commercial basis to the low rates, for banks have also been eager to increase their client base. Offering cheap mortgages is one of the most effective ways to achieve that objective.

Over 95% of mortgages in France are granted on a fixed rate basis, primarily because the main lending rule that is adopted is not the value of the property, but the level of the borrower's income.

As a general rule, the level of debt to income cannot exceed 33%, a rule that is adopted with few exceptions by the banks.

In December Christian Noyer, the Governor of the Bank of France, warned banks about lending too much at low fixed rates of interest, due to the possibility that when central bank rates increased in the future they might find themselves faced with refinancing at rates higher than those they lent out.

His remarks followed the recommendation of the Basel Committee on Banking Supervision (BCBC) that variable interest rates were preferred.

It was an intervention that momentarily spooked the market, with some observers arguing that banks would be obliged to offer more of their loans on a variable rate basis.

In practice, it has been business as usual, due in no small part to the importance of the lending criteria adopted by banks, which would be undermined by more widespread adoption of variable rate loans. Fixed rates offered greater security to both banks and lenders, as they reduced the risk of default in the event of an increase in rates.

There is also the risk that at a time of economic stagnation a move towards variable rates would further depress the housing market, so banks have sought to give some support to the market by offering low-interest fixed rates.

Nevertheless, as Crédit Logement have pointed out, the banks have provided themselves with a fire-wall in other ways, notably by seeking a higher deposit from borrowers and by greater scrutiny of client creditworthiness.

In addition, all borrowers are required to take out invalidity/death insurance to cover the mortgage, which costs around 0.5% of the loan amount, and which therefore needs to be factored into the total cost.

If you are interested in seeking a mortgage in France, you can visit French Property Mortgages to explore the finance options available to you.

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