How do you go about presenting the most persuasive loan application?
“We begin by analysing the net income of the borrower and his or her ability to repay the loan. In France, the upper limit for total borrowing is usually 33% - one-third - of monthly net income. When you want to apply for a property loan, the best thing to do is to settle all renewable and revolving consumer credit balances before applying.
It's also essential to be able to demonstrate an ability to budget your expenditure. This is what is meant by ‘good account management’ and it goes hand-in-hand with the amount that people are able to borrow. For example, someone on an average income who saves a little every month stands a better chance of securing a loan than a household where the income is higher, but every month ends with the bank account overdrawn.
Lastly, your employment status must be stable. You don't have much chance of obtaining a property loan if you are on a fixed-term contract or a trial period and you want to borrow as a sole applicant”.
Is it absolutely essential to have a deposit? What percentage of the purchase should the deposit be?
“For the last six months, having a deposit hasn’t been as essential as it was when rates were much higher and banks were more reluctant. Deposits were then at least 10 to 20 percent of the purchase price. Today, we are seeing applications accepted with zero and 10 percent deposits.
It all depends on the age of the borrower. At the age of 30, it's more difficult to offer a substantial deposit, because people haven't been working full-time for very long. On the other hand, at 40 to 45, an inability to offer a deposit would be seen as more suspicious by the bank, because they would interpret that as bad financial management... unless of course there had been some good reason beyond the control of the borrower”.
What sort of rate should borrowers expect to pay on property loans today?
“In mid-April, the average rate on a 20-year loan was 4.40%. But that can vary anywhere from 4.10% to 5.45%, depending on the bank and the status of the application.
Market rates change every day, which is why it is so important to use a broker that is in regular contact with lenders, and who knows in real time which bank will be the best-placed to fund your plans”.
Do you think that the current low rates are likely to last?
“Rates have fallen a long way since last November, and they are still falling: by 0.2% in March and 0.25% in April. We are now entering a period of stability, which seems certain to last until the end of June, during which we expect 20-year rates to stay at around 4.30 to 4.40 percent - 20 years being the average loan period at the moment.
Beyond the summer, it becomes more difficult to forecast what might happen with rates, although an increase does seem very unlikely, given the current economic situation and the level of base rates in the eurozone”.
We see on the news that credit is often presented as risky, especially in the USA. Do such risks exist in France?
“What happened in USA is very simple: borrowers took out variable-rate only loans at very low rates. When rates began to rise, millions of borrowers found themselves unable to meet their monthly repayments. The effect of that was to flood the market with thousands of properties for sale at the very time when there were no buyers to be found, which in turn caused prices to plummet. That's the reason why we have seen so many tragic stories of people having to leave their homes and live rough on the streets. This situation has no equivalent in France, because lending here is much more closely controlled, and 98% of property loans are taken out at a fixed rate. So to answer your question, no - there is no sub-prime risk in France!”
Have you seen any reduction in applications for property loans? What are the reasons for any slowdown?
“We saw a very marked slowdown last autumn, but we're now seeing a strong recovery, with applications up by 40% compared with October last year. Many potential buyers put their plans on hold when the global financial crisis broke. Currently, the fall in property prices, the new Prêt à Taux Zéro interest-free loan* and tax breaks on property loan interest are encouraging buyers to come back into the market.
Nevertheless, demand is still below the level we saw a year ago, because people in France are feeling the effects of the crisis. Naturally, everyone has to consider their own situation, but we're receiving a lot of perfectly reasonable applications, with no unusual level of risk”.
*Valid only for a main home
How do you see the property market developing over the coming months? Is this the right time to buy?
“With rates falling at the same time as property prices, I'd have to say yes to that - this is definitely the right time to buy. It's impossible to envisage any real slump in the property market, because France has an ongoing housing shortage. Analysts predict that prices will fall by around 10% or even 15% this year, although this will obviously vary from region to region.
My own view is that there's never been a better time for a buyer who can find the property of their dreams and can come forward with a solid application - people in that position really shouldn't hesitate!”.
