44 interest rate cuts, and more to come
Over half of developed markets' central banks have begun easing. GDP-weighted developed market monetary policy rates peaked in April 2024 – we have counted 44 rate cuts around the world so far in 2024 (against 7 increases). The ECB and Switzerland have cut rates three times, the Fed has announced a large (but belated) 50bps cut. The Bank of England has made its first move, the current reluctance to cut Sterling interest rates again is a tailwind for international investors – the pound is one of the strongest major currencies in 2024.
It can be argued that real interest rates have barely fallen, that certainly seems to be the policy in the case of the ECB – ie that the ECB rate reductions are simply (barely even) tracking inflation. Of course, central bankers remain wary of inflation. Nevertheless, in the current environment, further cuts are widely expected.
It goes without saying this is helpful for property markets. In the world of Ski Property - which are mostly holiday homes - many buyers and owners have not financed their property acquisition with debt. But this matters for those who are looking for a loan: either for the marginal buyer as they see affordability come into range, or to top up the budget, or for the fiscal benefits.
Gradually, then suddenly…
With this in mind, APi caught up with Miranda John of SPF in London to discuss how lending rates and banks’ attitude to risk are evolving in relation to the French market. Unsurprisingly, rates have come down – from the mid 4% range in May to below 4% for a 5-year fix for a larger loan with a private bank, where LTVs are in the 60-70% range alongside an asset management arrangement. Private banks are also able to offer interest only loans.
French lending rates follow Euribor
Rates offered in the French retail bank sector tend to follow 3-month Euribor, whereas some other EU countries’ banks base their rates on 12-month Euribor. For this reason, and for international borrowers, rates are still at the mid/low 4% level for a 20-year fix but are expected to decline to the high 3% range soon. Some French banks are taking a more constructive approach to expats in centres such as Hong Kong, Singapore and Dubai. However, the interest rates advertised by the high street banks in France should be taken with a grain of salt – they are aimed at French residents and may not include other necessary costs such as life insurance products.
Should rates fall while your application is in process, we are advised that these lower rates will be passed on to the applicant.
Ski Property is favoured by banks
The good news from our perspective is that in general, the Ski Property market is seen favourably by the banks, with 75-80% LTVs widely available. That said, retail banks may have quotas for the amount they will lend in a certain new development. Some banks may set limits per resort, for example those at lower altitude. Most lenders remain wary of the VAT rebate schemes on offer in France, where the time period for the VAT to be re-imbursed can take many months, or even up to a year. However, Private banks can be more flexible and will lend against assets deposited and flip this mortgage over to a loan against the property once it has been delivered.
In Switzerland however, the interest rate environment is looking more favourable. Rates in the mid 1-2% range are widely available.
Be careful what you wish for…
Readers of our previous articles will know that we have often said “we need more stock” – in some resorts, Méribel is one such example, where there is currently little new for sale outside the newbuild sector. But in the last 5+ years, the market has boomed with a surge of buyer activity, even before the pandemic. Where these purchases have incorporated debt, some loans will be up for renewal. With current rates considerably higher than they were then, it is possible this will lead to some owners evaluating the economics of their holiday home in the mountains. A modest increase of property for sale in the ski resorts would be welcome.
As a buyer, where do I start?
As a Ski Property buying agent, APi is well positioned to point you in the right direction when it comes to all aspects of your purchase in the Alps - be it tax advice, a good Notary, guidance on the purchase procedure, and financial products - with providers we know and trust.
Feel free to give us a call for an initial consultation, or just a friendly chat.
