Assetz® News - How cuts may help French property

How cuts may help French property

5th December 2008 |

When it comes to buying French property, many people may have imagined that this week would bring good news.

This, of course, would be in the form of cuts to the euro rate. Sure enough, yesterday brought the outcome many had been waiting for. The main rate was to be cut from 3.25 per cent to 2.75 per cent. For those keen on a mortgage in the continental currency, the hope will be that mortgage lenders will pass on the rate cut, so that those looking to buy in Cyprus, Germany, France or elsewhere will get a cheaper deal.

Of course, the expression of hope that a base rate cut will be followed by mortgage lenders passing on the full reduction is a familiar one to Britons. The last two days has seen plenty of sentiment expressed in this direction following the Bank of England's decision to cut the base rate from three per cent to two per cent.

It may be imagined that when it comes to investing in France, it is the euro cut that could make the bigger positive impact. But that may not be the case. Rajesh Agrawal of currency brokers RationalFX told French Property News that if the moves by the Bank of England help to bring recovery in the British property market, investment across the channel could benefit greatly.

He said: "Once these cuts are passed on to the consumer by the banks it could reverse the recent trend of falling house prices. Many homeowners in the UK may look to release equity in their property and reinvest elsewhere as the UK market has fallen more than the European market."

France, Mr Agrawal said, is the most likely beneficiary of this, stating: "With France being so accessible nowadays it is one area that could really benefit from the UK turnaround. Northern France in particular could reap the benefits of the UK market picking up and exchange rate negatives could easily be outweighed by the projected jump in prices."

Buying in the eurozone may seem a brave thing to do with sterling running at record lows against the currency, but the gains of which Mr Agrawal are talking may have far more to do with the long-term. Anyone investing now may consider that there could be no time when such a strategy makes more sense than the current time. For while the short-term may bring gloom and recession, the long run beyond that will supply eventual recovery and higher property values.

At the same time, there may be other reasons for investing in France following the UK rate cut. French property specialist firm VEF has suggested that with the value of investments in Britain likely to be "the lowest seen in decades", French property now becomes a much more enticing prospect. The portal listed among these figures from French estate agents body FNAIM showing the market to still be rising (particularly in the south-west), good deals on mortgages, the high level of public confidence of the population in the property sector and good potential for buy-to-let, with holiday rental yields of between four and seven per cent, plus permanent rental returns of six to ten per cent.

So while the euro cut may provide one good reason to invest in France, it seems that the trimming of the base rate on this side of the Channel may have produced even more.