French banks back off lending to overseas property buyers

French lenders are reducing their appetite for lending to overseas borrowers looking to buy property in France amid rumours that some have already reached their lending targets for 2011.  Lenders are increasingly becoming more risk averse and are changing their lending criteria to reduce the risks inherent in their mortgage lending.

French banks ‘reluctant to lend to international investors’

Recent comments from French mortgage specialists Athena Mortgages suggest that French banks are increasingly making it more difficult to agree ‘interest only’ mortgages.  The maximum term for interest only lending has been reduced in some cases and an increase in the net assets required for a pure interest only loan has been raised from 120 to 150 per cent of net assets.

Athena Mortgages director John Busby said: “If we widen the picture we can see that at least two other banks have closed their international branches, Societe Generale and UCB, compounding the trend for an overall increase in the reluctance to lend to international investors. 

“Several banks have reduced the amounts they are willing to lend to borrowers from outside Europe, whilst one major lender has restricted their products to EU citizens only.”

Affordability is crucial if you’re looking to borrow to buy property in France

French banks have also recently begun to adopt new global regulations on the amount of capital that banks are required to hold.  The Basle III criteria mean that total outstanding mortgages should be no more than six times borrower income.

Mr Busby also points to recent moves by French banks to tighten their affordability criteria for people looking to buy property in France.  He said: “Traditionally French lenders will only allow a maximum of 33 per cent of the gross income of the borrower to be set aside for loans such as mortgages. However, lenders have started to change the goal posts, refusing borrowers who they feel do not have sufficient funds to live on even though they meet the 33 per cent gross income requirement.”