Mortgage market South of France & Monaco

Mortgage market South of France & Monaco

Islay Robinson

There are few luxury property markets in the world which can match the cost and the lifestyle associated with South of France, in particular the French Riviera, and Monaco. Looking at the likes of Monaco and the South of France as a whole, the luxury property market is extremely buoyant with prices of around €42,000 per square metre in Monaco. To put this into perspective, Paris is one of the most sought after luxury property markets in Europe with prices set to top €10,000 per square metre in the summer of 2019 for the first time ever. This is well below prices for the South of France and Monaco.

Who buys property in the South of France & Monaco and why?

It is safe to say there is a fairly broad mix of investors looking to acquire property in the South of France and Monaco. There is still extremely strong interest from Russian and Middle East investors although interestingly demand from UK property investors is growing despite the farce which is Brexit. When you also consider the fall in sterling since the 2016 EU referendum (around 20%) this perfectly illustrates the long-term attractions which the South of France, Monaco and France in general still holds for UK investors.

There is also a strengthening trend of migration from northern Europe (where there is an ageing population) towards the South of France with significant numbers planning for their retirement and a better climate. Many people living in northern France are also looking towards their retirement and acquiring property in and around the areas of Monaco and the South of France in general. As a consequence, many experts believe that demand for French property in general will continue to increase. Specific demand for Monaco and the French Riviera is expected to be even greater.

How has Brexit affected the South of France & Monaco real estate markets?

As we touched on above, even Brexit, and the confusion this is causing, together with the ongoing devaluation of sterling against the euro has not stopped UK investors ploughing money into Southern France and Monaco. This together with interest from other northern European countries, Russia and the Middle East has pushed luxury property prices higher in recent times (although many are still below their 2008 pre-crash high). Interestingly, the rental market in the South of France is extremely strong across a range of clientele.

• Long-term rentals for house hunters

At this moment in time the supply of properties for sale in Monaco and the South of France is unable to keep up with demand. This has led to many people looking at long-term rentals in an area prior to acquiring their dream property – as and when they become available. Long-term rental yields are currently in the region of around 3% per annum.

• Summer season rentals

Those looking to enjoy a life of luxury on their summer excursion have been flocking to Monaco and the South of France for many years. As a consequence, this ongoing increase in demand for summertime rental properties can often lead to rental yield spikes of between two and three times the off-season level. So, some property owners have been able to rent out their second homes over the 10 week summer period for comparative annual yields of between 6% and 9%!

It may surprise many people to learn that the rental market in Monaco and the South of France is so strong and active. The idea that investors are happy to use their properties for just a few weeks a year, leaving them empty for the remainder, is certainly not the situation on the ground.

French property market

Like many European countries, the French property market as a whole struggled in the aftermath of the 2008 US mortgage crisis. Performance figures between 2008 and 2015 show just two years of increases in property prices, but the situation has changed since 2016. In 2016 French property prices increased by 1.55%, 2017 saw an increase of 2.9% and 2018 came in at just over 3%. The range of regional variations is fairly marked because of the different types of property, price, climate and popularity amongst overseas investors. Even though many believe that 2019 could be a year of relative consolidation, general real estate prices are still expected to increase by between 2% and 3%.

The situation regarding luxury real estate in France is even more encouraging. Many of the more expensive areas of the French real estate market saw double-digit price rises in 2017 (up to 15%) and 2018 (up to 17%). In line with the general trend, price rises may be more subdued in 2019 with expectations of around 5%. However, extremely favourable financing conditions and a French government which is currently pro-business bode very well for the future. It will be no surprise to learn that this scenario has attracted more high net worth individuals to the country.

There are a lot of uncertainties regarding the European property market at the moment, such as Brexit, political issues in France and the European economy (with Germany tipping into recession). However, whether Brexit goes ahead or not there is no doubt that France has cemented its position as Europe’s number two behind Germany and will have even greater influence going forward. There have even been signs recently that some luxury property investors have been switching from London to the likes of Paris, the French Riviera and Monaco.

While there is no doubt that the UK mortgage market is one of the most developed in the world, as is the overall lending market, the French property market is well-regulated. Indeed recent figures suggest that 85% of French mortgages are repayment mortgages with a fixed rate. As a consequence, due to this fixed-rate trend the property market is protected and stable to a degree other countries could only dream of. It is also worth noting that with European Central Bank (ECB) base rates at 0%, French mortgages are extremely cheap with current rates of:-

• 1.55% fixed rate for 15 year term
• 1.80% fixed rate for 20 year term
• 2.40% fixed rate for 25 year term

As a consequence, it is not difficult to see why French property is popular and the French mortgage market is extremely liquid. There are some extremely attractive deals for overseas investors looking at luxury French property. While traditional French banks offer a very rigid approach, private banks and niche lenders tend to be more flexible and accommodating.

How easy is it for foreign nationals to get a mortgage in the South of France & Monaco?

As you can imagine with ECB interest rates at 0%, many French mortgage providers are looking to expand their relationship with foreign high net worth individuals. This allows them to offer mortgage services as well as managing a significant portion of their worldwide assets. Traditionally, for those looking towards the luxury property markets of Monaco and the South of France, a mortgage agreement will often stand side-by-side with an asset management agreement. This could range from anywhere between 20% and 60% of the total amount borrowed and acts as an insurance policy should there be any difficulties in the future. In reality, it is simply a means of laying the foundations for a longer term more expansive relationship between French banking institutions and foreign high net worth individuals.

If you are UK-based and looking to acquire French property, the first thing to consider is the current differential in interest rates. UK base rates are 0.75% while ECB base rates are 0% and with Germany likely to slip into recession in the short to medium term, there is little reason for interest rates to push significantly higher. That said, interest in the French property market, a strengthening economy and a greater presence on the EU stage have led to a slight increase in French mortgage rates in recent times. Aside from the relatively low rates mentioned above, there are very few UK banks willing to offer full term fixed rates. The fact that the majority of French mortgages are also repayment mortgages helps to avoid any potential funding issues towards the end of the term.

The difference between retail and private banking mortgages

The fact that Enness operate as independent mortgage broker means we have access to the full lending market not only in the UK but across Europe and the world. There is no doubt that the UK mortgage market is one of the most developed but with ECB base rates at 0%, international and domestic banks operating in France can offer exceptionally good rates. These tend to apply to more vanilla high net worth lending where there is income, assets and a degree of headroom is built into the agreement (usually assets under management). However, when we stray into the more complicated financial setups, taking in worldwide assets and worldwide income, this tends to be the domain of private banks and niche lenders.

While retail banks tend to look at income ratios, private banks and niche lenders will take a look at the overall picture. For many of these non-traditional lenders, mortgage business is not their main operation and they tend to use this as a means to increase their assets under management. As a consequence, the ability to create bespoke mortgage arrangements which take in an array of different assets and income streams can prove priceless. The only thing that UK buyers should be aware of is the relatively high fees associated with French real estate transactions. Legal fees and taxes on a purchase can hit 7.5% with mortgage refinancing costs around 1.5%. There are ways a means of mitigating these relatively high fees which is where your mortgage broker will come into their own.

Enness dry lending arrangement

The term “dry lending” relates to mortgage finance which does not require the transfer of assets to a management arrangement with a finance provider. The transfer of assets, at the time of agreeing mortgage finance, tends to be the traditional route with luxury property purchases which are often in the millions of euros. However, here at Enness we have managed to arrange what is best described as something of a hybrid arrangement sitting between high street banks and private banks.

Due to our strong relationship with many lenders in the market, we have managed to secure exclusive terms as follows:-

• No assets under management required
• Mortgages up to €5 million
• Up to 60% loan to value on Monaco and adjacent France region properties
• Up to 50% loan to value for properties in Paris and other prime France locations
• One year’s interest to be held on account (subject to profile)
• Rapid turnaround

For those who are looking to include assets under management as part of their mortgage arrangements with private banks and niche lenders in France, we should be able to secure even better rates. However, for those not willing to transfer assets to their new mortgage provider the above deal is extremely attractive.

Bespoke mortgage arrangements

Perhaps the only downside of the French mortgage market is the higher transaction costs associated with French real estate when compared to UK property transactions. However, once you dig a little deeper there are some extremely attractive French mortgage rates available which can be fixed for the full term of the loan. When you consider the current level of ECB base rates and the fact it is possible to secure full term mortgage rates at around 2% this is very compelling.

The mix of traditional French banks, private banks and niche lenders is something we are very familiar with. We have French speaking advisers in constant contact with French lenders checking market trends and current rates. The opportunity to have “on the ground” advisers with a deep understanding of the local markets is priceless. We provide the skills to create a bespoke mortgage arrangement built around your specific financial situation and assets. This will maximise your financial strength while minimising your financial liabilities.

If you would like to discuss your specific situation in more detail please feel free to call us for a no obligation chat. We can discuss potential deal structures, current rates and the scope for negotiating the best deals.