The current mortgage rates in France are making investing in Paris real estate attractive, especially for international buyers.
But how long will these rates hold?
We speak to a bilingual mortgage broker, a trusted partner of 56Paris, to find out.
Interest rates around the world
Looking at the current mortgage rates in France, it’s surprising how they compare to other countries.
Based on multiple sources, interest rates available with domestic French banks are averaging just 3.1% on a 20-year fixed mortgage.
While in the USA, current interest rates now average 7.06% on a 30-year fixed mortgage, double what they were a year ago. It’s a striking difference.
This means that for non-residents, the French rates are extremely attractive.
Especially for Americans, as the dollar is holding strong against the euro.
In fact, mortgage rates in France are the lowest compared to many other countries around the world. For five-year fixed mortgages they average 4.48% in Germany, 5.72% in the United Kingdom, and 6.45% in Australia.
An interview with a bilingual mortgage broker
Our expert broker, who works with international buyers in Paris, gives an update on the current mortgage rates in France. And what the near future might hold.
Will these attractive interest rates for foreign buyers increase soon?
Currently, we are seeing rates for non-resident (non-French) buyers between 3.40% to 3.70%. This is for mortgages from five to 25 years, excluding the cost of mandatory life insurance.
But these rates have been rising each month for some time now, as the central bank base rates have continued to increase. In December 2022, for example, we were seeing a range of 2.65% to 2.90%. So yes, we do expect rates to continue to rise in the coming months. Some forecasts show that things may start to settle after the summer, if inflation in the EU is under control by then.
Are there caps placed on interest rates in France?
There is no cap on interest rates per-se. However, there is a concept called the ‘taux d’usure’ (usury rate) that protects the consumer from banks charging rates too out of line with the market.
The usury rate looks at a kind of APR-type calculation (called the TAEG in French) that incorporates mandatory costs such as bank fees, legal costs of securing the loan on the house, mandatory life insurance coverage, and so on.
This TAEG rate cannot exceed the maximum rate established by the Banque de France. Until recently, this headline rate was reset every three months, looking back at the previous quarter’s practiced rates and adding one-third to establish the maximum for the next quarter.
As this is a lagging indicator, it has created a lot of problems in a market where the underlying bank rates are rising each month, as the banks are often unable to lend below the headline TAEG rate while maintaining a reasonable profit margin. Borrowers over 50 found themselves unable to get insurance at a low enough cost to keep below the headline usury rate. Many banks during 2022 decided to suspend lending as a result.
From February 2023, the Banque de France reviewed their mechanism by resetting the headline rate every month, instead of every quarter. This helped somewhat by keeping the usury rate more in line with the market. But as rates are still rising it’s still not as easy as in a stable rate market.
Comparing the mortgage rates in France to the US
How does the evolution of these rates compare to that in other countries, such as the US?
Europe tends to lag behind the US, and we’ve seen this again here. The US rates went up faster and higher. The usury rate mechanism helps to give a relative stability, although it can also restrict access to lending. But we’ve seen rates move up slower in France, and not as high as in the US.
What sort of term can foreign buyers expect to obtain on their mortgage here?
Up to 25 years is available. However, there is also the cost of the mandatory insurance, and our banks prefer the loan to end by the time the borrower turns 75 years old.
How much is a down payment for foreign buyers?
For non-French buyers who are not resident in France, we can expect to finance up to about 70% of the purchase price, excluding fees. For non-metropolitan areas it’s lower, up to 50%.
But for some profiles and larger purchases, we can structure loans differently, borrowing up to 100% of the purchase price with an associated investment account held as a partial pledge. This can be advantageous for some households.
How long does the mortgage process generally take in France?
We can start the approval-in-principal process ahead of purchasing, to give an idea of feasibility and product choice. But the banks won’t study a file or lock in a rate until the client has signed a ‘promesse de vente’ (reservation contract).
The mortgage process usually takes six to eight weeks after that. An average timeline to close on a purchase is around three months.
In addition to the advantageous interest rates, are there fiscal advantages to purchasing with a mortgage in France?
Buyers should consider whether they are able to offset interest costs on loans in France in their home country.
Cash buyers and the French wealth tax
Should cash buyers ever consider purchasing with a mortgage? What about the French wealth tax?
Property owners with net real estate assets over €1.3 million pay a wealth tax, whether or not they are resident in France. Having a loan can initially keep the value of their assets below this mark, even if the property price is above it.
This is a topic covered in an earlier blog.
At what interest rate and property value amount does a buyer break even on their mortgage here in terms of the wealth tax?
Using a mortgage exclusively to eliminate wealth tax does not make sense, as you will pay more on the loan interest than you would on the wealth tax.
However, if you look at it differently and consider the cost savings on the wealth tax as an offset on the mortgage rate, it can be worthwhile. Consider saving 1% on wealth tax for any net real estate value over €2.57 million. This means your effective mortgage rate can be reduced by 1%, making the mortgage attractive versus the income you could make by keeping your money invested elsewhere.
Currency exchange for cash buyers
Are there other reasons for cash buyers to consider a mortgage?
We see some buyers also using a property loan as a partial hedge on currency exchange. While they will pay interest on the loan and incur some set-up charges, this enables them to then take advantage of currency exchange swings to time their transfer into euros, to pay down the loan with no penalty.
As currency rates have seen quite some volatility, this can be something worth considering.
Get in touch with 56Paris
If you would like to know more about buying a property while the mortgage rates in France remain low, get in touch with 56Paris.
We can also put you in touch with the Paris based mortgage broker interviewed in this blog.
All information given in this blog is current at the time of writing and is a guide only. At 56Paris, we always recommend consulting a legal and/or finance professional for advice on your own personal situation.