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PROPERTY

Do falling interest rates in France mean more people are buying property?

Interest rates in France have finally begun to fall but has the drop sparked the French property market into life?

Published: 7 May 2024 17:03 CEST
Do falling interest rates in France mean more people are buying property?
The town of Erquy on the bay of Saint-Brieuc in the Cote d'Armor, Brittany, west of France. (Photo by MIGUEL MEDINA / AFP)

After real estate professionals called 2023 an ‘annus horribilis’ in France, prospective home buyers have been hoping for the market to improve in 2024.

One particular issue last year was high interest rates for mortgages, coupled with strict loan requirements.

As a result, the number of mortgages granted dropped by 43.5 percent when comparing October 2023 with the same month the previous year, according to France’s Housing and Credit Observatory. 

However, those high rates have finally begun to fall, as experts thought they would.  

According to data from the Banque de France, average interest rates for new housing loans in March 2024 were at 3.94 percent, a decrease from 4.11 percent in February and 4.17 percent in January. 

However, the average rate from March was still considerably higher than that of February 2022 (just 1.1 percent). On top of that, and the rate of purchases and new mortgages are still at a low level.

France’s central bank published new data on Monday that found that despite the dropping rates, the total amount of real estate loans given out has continued to decrease. 

The total amount of money awarded to new mortgages in March amounted to €6.7 billion, down from €7.4 billion in February, marking the lowest value in almost 10 years according to Les Echos.

Why is the market still slow?

According to reporting by Les Echos, a big part of the problem is that overall real estate prices are still very high, even though they have started to decrease.

The Notaries of France found in their yearly report that property prices had gone down by an average of four percent across the country in 2023, but this picture depends a lot on location.

Large cities, such as Paris and Lyon, have seen greater decreases in the price per metre squared, while small-to-medium sized cities and rural areas have seen prices remain stable or even increase.

For example, property prices in the Paris region dropped by 6.9 percent year-on-year in February 2024, compared to a decrease of 2.9 percent which was the average for France’s other regions.

Additionally, would-be buyers still have to contend with France’s strict lending regulations.

READ MORE: French property: How to get a mortgage in France

In 2022, France’s council for financial stability (HCSF) issued new rules requiring that repayments – including insurance charges – must not exceed 35 percent of income, and borrowers must take on a loan with a maximum of 25 years, or 27 years in certain cases. 

In December 2023, French lawmakers attempted to take up this issue. They succeeded in making things slightly more flexible, including allowing banks to allow borrowers to take out a 27 year loan as long as they are having renovation work that represents at least 10 percent of the home’s cost.

The HCSF also changed some of the ways that banks can calculate interest, as well as giving them more leeway in giving loan-related exceptions (previously these exceptions could only account for the 20 percent a quarter). 

Is the government doing anything to boost the market?

In late-April, French MPs tried to table another bill that would loosen the regulations for granting loans even more, however it was eventually withdrawn after being criticised by the Banque de France for lacking substance. 

Any new changes will likely be announced during the next quarterly meeting between the Banque de France and the minister of finance, Bruno Le Maire, but the date has still not been announced yet.

READ MORE: Where in France will property taxes rise in 2024?

What do experts expect for this year?

In April, the French property site Meilleurs Agents published their predictions for 2024, based on data from the first quarter. According to their experts, average mortgage rates will likely continue to on the trend of decreasing slowly.

However, this will depend on the policies set by the European Central Bank, which considers factors such as inflation when making their recommendations.

The property site also predicted that property prices would continue to drop, while maintaining large disparities between big urban areas and rural ones. 

As for whether or not the market will speed up, the experts referenced the situation from 2023, when the number of property transactions (sales and purchases) fell by 20 percent. They predicted that there would still be a decrease in transactions, but that it would be lower than the one seen in 2023. 

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JOHN LICHFIELD

OPINION: France’s economy is far from doomed, but not quite booming either

Depending on who you ask, France's economy is either booming or doomed - John Lichfield takes a look at who is right and where French finances are heading.

Published: 15 May 2024 11:12 CEST
Updated: 18 May 2024 11:17 CEST
OPINION: France's economy is far from doomed, but not quite booming either

France is booming. France is also doomed. Take your pick.

On a much-visited French news site Le Figaro this week, consecutive stories collided head on.

The first story reported that the annual ‘Choose France’ conference will bring a record number of foreign investments to French soil in 2024 (56 projects worth €15 billion). France is the most attractive country in Europe for foreign investment for the fifth year in succession.

The second story – an essay by the political commentator and pollster Jérôme Fourquet – said that the French economic model of the last 40 years, had “reached the end of the road and left the country in a cul-de-sac”.

France no longer “made anything”, the essay said. The economy was being kept alive by state and consumer spending, funded unsustainably by twin deficits of trade and public finance.

Which is true? Both, up to a point.

The Choose France foreign investment conference in Versailles this week will be the most successful since President Emmanuel Macron launched the project six years ago. France opened 200 more factories than it closed last year, returning to a modest trend of “re-industrialisation” interrupted by the Covid and Ukraine crises.

Jérôme Fourquet’s essay was brilliant but also over the top. It ignored some of the positive developments in France of recent years.

It suggested that France “made nothing” but also admitted that the country was a world leader in arms, cosmetics, perfume, luxury goods and wine.

France, Fourquet might have added, is also one of the world’s largest exporters of cereals. It holds a major part of Airbus, the world’s most successful plane-maker. Unlike the UK, it is still a train-maker and a car-maker, although both industries have declined.

All the same, the essay made good points about the “French model” created unconsciously over four decades by governments of Right and Left and only timidly changed by Emmanuel Macron’s Centre in the last seven years.

Fourquet defines the French model as “state-consumerist”, a mixture of excessive public spending and taxation and generous pensions and welfare payments which allow most French people to live reasonably well. Unfortunately, the high taxation is never enough to cover the public spending and the consumers consume more from abroad than the country exports.

The result is twin, expanding deficits in public spending and the balance of payments which cannot be sustained indefinitely.

In 2003, France’s accumulated state debt was the equivalent of 63 percent of annual GDP. It is now 110 percent of GDP. The annual service charge is about to overtake education as the single biggest item in the state budget.

In 2006, France’s trade deficit was €4.3 billion. In 2023, it was €99.6 billion (admittedly inflated by the high cost of oil and gas).

Fourquet says the cost and bureaucratic weight of the French state make creating businesses – and wealth and jobs – more difficult than in other EU countries. This is covered up by more state spending which, in turn, sustains consumer spending which, in turn, boosts the twin deficits. A vicious spiral.

He concedes that Macron has tried to chip away at the state in the last seven years. The President has also splashed the cash on pet projects and has done little to reduce the regulatory burden.

Rather than lighten the entire system, Macron suspends rules and norms when he wants to get stuff done (such as the rebuilding of Notre Dame cathedral). The success of his foreign investment drive is also partly based on “keys in hand” offers of low or no-regulation factory sites which are not always easily accessible to domestic investors.

Some of those criticisms are justified. Macron has not been the revolutionary that he promised to be in 2017. He has been a plodding state reformer, extending with some success the job-friendly policies introduced by President François Hollande. France being France, neither man gets any credit.

There are signs that the economic downturn late last year (and the explosion in the budget deficit) may have been a temporary set-back as Macron insisted. Growth in the first three months of this year exceeded expectations at 0.2 percent of GDP. Jobs are being created again. (More than 1 million extra jobs since pre-Covid days).

High energy costs are crippling business across Europe but they are lower in France than elsewhere. The boom in foreign investment in France has tended to be high in value but low in jobs. The industrious and energetic minister for industry and energy, Roland Lescure, says that is now changing.

One of the projects under discussion at Choose France is a home-grown plan for a €1.6 billion solar panel factory in the Rhône delta which would create 12,000 jobs.

So is it boom or is it doom?

Neither. There has been a gradual, positive shift in the French social-economic model in the last seven to ten years which Jérôme Fourquet plays down or ignores.

Macron promised to do far more but he has had to surmount to two international crises (Covid and Ukraine) and to adjust to two domestic revolts (Yellow Vests and pensions reform). His unpopularity is partly explained by his failure to sell a convincing narrative of reform; it is also explained by France’s obsession with “reform” (in the abstract) but hatred of all “reforms” (in detail).

But what are the alternatives? All the opposition forces, from far-left to far-right, offer policies which would preserve or worsen an unsustainable status quo.

Macron’s final three years are unlikely to achieve much in the way of new reforms. A recovery of the economy might warm attitudes to Macronism (a big ask) and allow his would-be successors in the Centre to block Marine Le Pen in 2027.

Otherwise, Le Pen’s zombie economics – extra spending, no new taxes, breaking the European single market – could tip a heavily indebted France into the abyss.

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