French banks unprepared for spike in demand

Photo: Moyann_Brenn

Some French banks have struggled to cope with a spike in demand from overseas property buyers.

The French property market has become increasingly attractive to foreign investors in the past year, thanks to record low mortgage rates and stagnant prices, makng the country's real estate affordable.

However, last month, the country rose its interest rates, prompting buyers to step up their activity in order to purchase property before affordability declines. This spike in transactions has, conversely, led to a slowdown in the mortgage industry.

"This is partially due to staffing issues at some banks who were not prepared for the continued spike in applications," explains John Busby, Private Clients Director at French Private Finance.

"The sheer rate of increases in lending is also becoming a concern for the credit risk managers that want things to slow down. This may happen on its own, as they don’t have the staff to cope."

Some lenders have responded to this problem by temporarily refusing to accept any new applications.

"The worst case so far is a cessation of all new business until September,” adds busby. "Many of the large resident lenders are also no longer willing to undertake [loans secured solely by a property] or ‘le credit-sec’ as it is known amongst the banquiers."

With increased lending frequency, banks are asking clients to place between 12 and 24 months of mortgage payments in an account, which would represent 5-10 per cent of the loan amount.

"This is on top of the expectation for clients have life assurance, home insurance and to maintain a good level of savings," continues Busby. "Whilst the fees and outlay for obtaining these loans may be costlier, there is a trade off, with lower rates offered as a result."

For example, the broker can currently source a loan at 2.2 per cent over 20 years at 60 per cent LTV, with 12 months payments in a savings account and a fee of 1 per cent, compared to a 2.7 per cent 20-year product available on the market.