By now, most people have realised that the financial
market is in trouble, around the world as well as here
in France. Televisions bombard viewers on a daily basis
with news of yet another bank or insurance company
going to the wall, or those who have managed to stay
afloat with rescue tactics from other temporarily
stronger banks or government bail-outs. Stock markets
have gone down record levels, and generally everyone is
feeling the pinch.
The property market is not only tied to this financial
maelstrom, but some are saying it was the catalyst for
the entire financial meltdown in the US. Here in France,
the picture is not as bleak as in certain other countries,
notably Spain, the UK and America, but the market is
certainly suffering. In order to understand what's
happening with properties now, we need to look back
over the last few years.
During the last decade property prices have risen
sharply, a phenomenon unusual for France. In general,
prices have doubled in the past 10 years. This rise was
made possible by prices starting off at a low level
compared with other European countries, with even Paris
being cheaper that London. Demand from northern
Europeans coming south into France, for work or leisure,
was fuelled by historically low interest rates, easy
borrowing and 100% mortgages, something not
previously seen in France. As prices rose, mortgage rates
dropped, and loan periods were increased, from the
normal 20 years to as much as 35 years. Solvency was
maintained. This scenario continued throughout 2006.
By 2007, some areas were seeing a slow-down, with
fewer sales being made due to the prohibitively high
prices. Domestic markets continued to prosper as long
as banks financed. Holiday home and second home
markets started to weaken. The autumn of 2007 saw a
substantial drop in the value of the pound sterling. UK
buyers were at a disadvantage over euro-zone buyers,
losing up to 20% buying power. Coupled with the UK
housing market dropping faster than the French market,
UK buyers started to seek out cheaper properties, many
looking at hitherto unexplored areas of France where
property was less expensive. Many others just put off
their purchase.
In 2008, added to the scarcity of British buyers, the
American sub prime mortgage scandal started to hit
French banks. French people, unaware that their banks
were so heavily involved in the American market, were
initially optimistic that their country wouldn’t be
touched by the scandal. After all, French banking
practice in mortgage lending was much more strictly
controlled. However, it soon became clear that French
banks had invested in the US and were going to have
their share of difficulties. Mortgage rates rose, and the
lending criteria for French mortgages, already fairly
stringent, was more strictly applied. Banks wanted a
deposit, 5% or 10% down, a practice of the 1990s but
almost abandoned since. Loan terms dropped, 25 years
becoming the normal maximum again. Solvency for
many people, especially first-time buyers, was not
possible and lending declined.
The French domestic market suffers most from the
credit crisis, with people not able to get on to the
property ladder or able to move up it. British holiday
home buyers used to frequently re-finance their UK
property in order to buy one in France. Lack of equity
and higher mortgage rates have prevented or
discouraged many from doing so. Plus, British buyers
wishing to relocate to France may not be able to sell
their UK home.
Second homes are a luxury market, a non-essential
item. Most buyers can wait until times get better before
investing in such a purchase. However, not everyone is
short of cash. If you have the opportunity to invest,
property can be a good deal. Prices are more realistic
now than six months ago. Are they still falling? Property
values are dependent on several factors: demand,
solvency, position and desirability, among others. The
best properties are always sought after and may not
drop much in price, though they may not attract a high
premium at the moment. Less well-placed properties will
drop more in price. Price drops of between 5% and 30%
may be expected, according to the property, area and
demand. The cheapest ones, however, are not always the
best long-term deal. Choose carefully, and now could be
the time to pick up a bargain.
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Downtime 
