Our experts predict part 3: Interest rates
In the last of our three series, Independent Financial Advisor Peter Brooke predicts superb mortgage deals through 2016
The effect of mortgage interest rates on the property market is as significant in France as it is in other countries. Perhaps even more so. In the decade that I’ve worked in property finance on the French Riviera, foreign buyers have tended to take full advantage of attractive French interest rates, which are habitually lower than those in the UK, US and elsewhere.
Let me give you an example. In 2005, when I was applying for fixed rates interest deals for 3.50%, the Cote d’Azur enjoyed a property boom. In 2010, when regular rates topped 4.75%, the market was flat. Of course other factors affected the market, but borrowing rates were an important part.
And in 2015? I arranged 20-year fixed rate deals as low as 2.7%. The property market in Nice, Cannes and Antibes is chugging along nicely.
So how will interest rates change in 2016? The answer is in the hands of the European Central Bank (ECB) who set rates across the Eurozone.
In their infinite wisdom the ECB eventually deduced that low interest rates can boost the continent’s economy. Rates then went down faster than a bottle of rosé on the Cours Saleya.
In 2014 ECB lending rates hit a hitherto unseen -0.10% . Yes that’s a NEGATIVE interest rate. French banks then add a percentage or two for liquidity costs and their profit, before passing on their own mortgage deal on to borrowers.
Most financial commentators agree that the ECB has little need to raise rates through 2016. Inflation across the Eurozone is near zero (and could be deflationary in some countries). GDP is rising, but still sluggish. Why ruin the Europe’s fledgling recovery with a rate rise?
That’s why 2016 should be a year of no interest rates rises in the eurozone, even if there are some in the US and UK. And that’s why Independent Financial Advisors like me can currently offer 25-year fixed rate deals at 2.90% as well as variable rate deals around 2.6%.
One final point for foreign buyers; the Loan-to-Value (LTV) amounts tend to rise during an era of looser money, then contract in a period of fiscal austerity.
Back in 2005 I could offer 85% LTV deals to overseas clients, but only 75% LTV deals in 2010. Come 2016 85% deals are back on the table, though only in certain circumstances, making purchasing a property on the French Riviera more affordable than ever before.
A short word of warning; though rates are great, LTVs are back up, we are still not past the worst; banks are still refusing files and so getting advice and help in presenting your situation is vital to your success in achieving lending in France.
Peter Brooke is an Independent Financial Advisor for the Spectrum Group. Click here to contact him.