As you would expect during the current crisis, there is a link between the Coronavirus and mortgages in Paris.
For the latest information, we speak to an expert mortgage brokerage from our own network. Trusted professionals, they are a firm whom our clients always enjoy working with.
Based here in the capital, they give us an overview of the situation right now, as it is happening.
A Paris mortgage broker’s view
56Paris: Before the Covid-19 crisis, the press revealed upcoming mortgage restrictions by the French banking authority. These were set to impact both French and international buyers. Can you tell us about these new plans?
Broker: The Haut Conseil de stabilité financière (High Council for Financial Stability – HCSF) became concerned that the personal banking sector was issuing too much debt for real estate loans. Also, that many conditions were stretching households too much. The HCSF issued new guidelines for lending and called on banks to respect them. There were four main points.
Firstly, we are to begin strictly following the 33% debt-to-revenue ratio limit. This was previously more of a ‘guideline.’ Although it is this guideline that ensured Paris was spared the impact of the subprime crisis back in 2008/9.
The debt-to-revenue ratio looks at a household’s monthly outgoings including loans, rent, and mortgages, as a percentage of the household income.
The second new stipulation is to limit loan durations to a maximum of 25 years. Although this is already the case for most banks.
Third, that going forward only 15% of the annual production of loans should fall outside these criteria. Of these, main home or first-time purchases should make up 75%.
Finally, we are now advised that a household’s total debt should not exceed seven times the annual revenue.
These new guidelines target the French resident market but naturally, apply to all loans written by French banks.
For international buyers making second home purchases, the debt-to-revenue ratio of 33% is set to be strictly enforced. Of course, this has been the case already, with those buying second homes overseas normally being financially more comfortable anyway.
Covid-19 and the HCSF guidelines
56Paris: Will the coronavirus situation change these new restrictions?
Broker: They are already confirmed, and some banks enacted the recommendation in February. There have been no modifications or relaxing of the guidelines yet.
The current situation of coronavirus and mortgages in Paris
56Paris: Has the crisis brought new mortgage requests and bank approvals to a halt?
Broker: Banks are organizing themselves at different speeds. One network has shut down new requests until the end of April, while others seem to be accepting new requests for now, although at a slower pace. Front office staff are working remotely, so remain able to field certain requests, but again slower than usual.
The French postal system has also slowed down, which has impacted clients returning their acceptance documents. Back offices are generally overloaded and are giving priority to the release of funds activities for those files already accepted and signing soon, rather than issuing new loan offers.
We still do not know if the ongoing situation will have banks focus their limited staff on ongoing client services, rather than new client acquisition. It’s too early yet to judge the impact and how each bank may choose to emerge from the crisis.
Additional consequences for Paris mortgages
56Paris: Should we expect any delays?
Broker: For anyone looking for a loan, purchase contracts should request an absolute minimum of two months from the start until the loan offer. Ideally, three months. It would be better to have this clock start ticking following the lifting of the official lockdown.
We have seen some clients wording their contracts in such a way as to allow signatures to happen, while offering protection in the time it takes to secure financing.
56Paris: When coming out of the crisis, what impact do you anticipate Covid-19 will have on rates, loan duration, and down payments?
Broker: Some banks are already increasing rates, to slow down demand and get back profitability. The market fundamentals seem to imply rates will drop, but we suspect that the drive for profitability will actually drive rates the other way. At this moment, we don’t anticipate any changes in durations or down payment requirements.
The latest advice from a broker
56Paris: What would be your best advice to somebody who is looking for a mortgage?
Broker: Be very patient, and get organized. While a broker can evaluate your borrowing capacity and the feasibility of your project upfront, we suspect that the banks, even more than before, will not want to look at any file until the buyer has a signed pre-contract.
56Paris: What about existing mortgages? Are banks making any concessions due to this unique situation?
Broker: At a national level, we have not seen any common approach for giving clients a payment holiday. That said, certain banks are showing flexibility above and beyond contract stipulations, and I am sure this will evolve.
For now, it is important to understand the flexibility built into your mortgage terms. Some already offer payment holidays, or the chance to reduce monthly payments under certain conditions. Although these are often limited, it is still worth approaching customer services to request a payment holiday. Hopefully with an increased volume of requests, the banks should start to issue a more formal response rather than evaluating case-by-case.
Here for you, whatever happens next
So it is clear, it is not just the people of Paris who are facing a lockdown. The entire mortgage market is also dealing with unprecedented new ways of working.
Only time will tell exactly what the future holds for the coronavirus and mortgages in Paris. We will continue to update this blog with the latest information.
The 56Paris team are all working remotely at this time, so available to assist with any queries about buying or selling here in the French capital, now or in the future. Please feel free to contact us to see how we can help you.