Why a sinking pound shouldn’t scupper investors’ French property dream
Guy Stephenson is a director for expat mortgage broker Offshoreonline
Since the Brexit vote last year, sterling’s fall against the euro has been well documented – from around €1.30 euros to the pound just before the vote to closer to €1.08 euros today, a drop of over 15%. As a result, many British buyers looking for a new home in France might be considering postponing their purchase and waiting on the sidelines.
But their analysis may well be flawed due to three main reasons.
French mortgage rates remain at close to record lows; you can lock into 10 year fixed rate French mortgages at 1.70%. At this level you will save significantly on interest repayment costs over the term of the loan.
Secondly, there are practical ways in which you can mitigate sterling’s weakness and perhaps in the long run turn this to your advantage. Deposits in France start from as little as 15%. On a €500,000 purchase, that is just a €75,000 deposit, or £65,500. Last year, with sterling at €1.30, the deposit would have cost less, at just under £58,000, but if the price of your home rises by as little as 2% over the next year you have more than recouped that loss.
Robert Green, founder and managing director of international sales agent Sphere Estates says: “Property in many areas of France is selling well, particularly in the classic British regions of the Côte D’Azur and Languedoc. French property prices are still bumping along the bottom so it’s a buyer’s market in many areas, bargains are there to be had. Historically low interest rates and good LTV mortgage deals means it’s an attractive time to purchase. Paris, a core urban market for us, is also performing well and we are seeing growing demand from buyers and investors from the UK and across Europe.”
Thirdly, for those not renting their second home out to generate a euro income stream to pay their euro mortgage, there are other ways to limit today’s costs, such as opting for an interest-only mortgage. The interest only cost of a €500,000 loan bought with a 25% deposit is just over €1,000 per month. If you opt for a 25 year repayment mortgage with a similar deposit, the capital and interest costs each month are more than double this figure at €2,100 monthly, so you can save €1,000 each month in the short-term just by using an interest-only structure.
The macroeconomic environment too points towards buying France now to lock into growth – according to the latest government figures released earlier this year, the French economy is on track for its best year of growth since 2011, with growth of 0.4% achieved in the first three months of 2017, twice that of the UK over the same period.