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Rate rise hits property market

Rising interest rates take their toll and some families find themselves excluded from market

After the amazing events in the housing market last year, where prices rose by nearly nine per cent – and 18 per cent in Paris – estate agents Century 21 say sales look to be settling down this year to a steady three per cent rise.

Prices hit record levels in 2010, reaching an average of €2,580/m2 against the previous top price of €2,549/m2 in 2008, but agency president Laurent Vimont said impending rises in the mortgage interest rate would take some of the heat out of the market.

However, that has not stopped the building trade; the record low interest rates, combined with increased incentives to buy housing, especially new energy-efficient housing, have led to a boom in building projects and a rise in the number of construction permits being issued.

Last year the number of housing projects started grew by 3.5 per cent to a total of 346,000, while there was a 15.1 per cent increase in the number of permis de construire to 453,000.

This may help people who can get the benefit of the new prêt à taux zéro plus (PTZ+) zero per cent loans, but Mr Vimont said people “trading up” their houses for somewhere bigger or in a better area would be particularly affected by the steadying of the market.

Since interest rates reached their all-time low in October, they have started to rise, especially for shorter-term loans, and online broker Empruntis predicted rates would increase by half a per cent this spring.

The company said that this single movement would have excluded 10 per cent of solvent buyers from the market at the end of last year.

Buyers who could have borrowed €150,000 over 20 years at 3.55 per cent in October will now find they are repaying at four per cent, the same level as October 2009.

Empruntis quotes its banking partners as looking for higher rates to keep in touch with market rates, which have been rising steadily. It said bank interest rates had now risen for three months in a row.

It foresaw prices in Paris rising by a steady five per cent over the next year, with prices steadying across the provinces, but admitted that a five per cent price rise would impact heavily on the number of available buyers.

Such an increase in the capital would lead to 27 per cent of dossiers for mortgages being refused because the families level of debt would be too high. A similar rise in the provinces would impact on 18 per cent of applications for the same reasons.

Meanwhile, Mr Vimont admitted last year’s price rises were not evenly spread throughout France and, of the 20 regions where they had strong representation, 11 had still not reached the price levels prior to the financial crisis.

He pointed to Alsace, the Auvergne, Brittany, Centre, Champagne-Ardenne, Basse- and Haute-Normandie, Lorraine, Nord-Picardie and Poitou-Charentes. Mr Vimont added that prices in Haute-Normandie had even fallen by two per cent over the past year.

Bernard Cadeau, his opposite number at Orpi, the other big French agency, also said that the average figures on sales were only an “arithmetical marker; the reality of the market is different because it is disparate”.

Mr Vimont said it was well known that Paris, the Île-de-France drove the property market – it had been called a two-speed market with Paris on one side and the provinces on the other – but he said that nowadays, it was nearer to a three-speed market.

First came the overheating Paris market, with a powerful disparity between demand and the available properties and a price nudging €8,000 a square metre; then the Île-de-France and regions such as Lyon, Toulouse and Nantes with pushy prefectures, which had seen prices equalling or bettering their pre-crisis mark.

The slowest speed market was the “rural” market of the 11 regions, where there was a fragile balance between price and availability. A similar picture appears in the number of new building projects, where Île-de-France is again leading the way: it has seen a 20.6 per cent increase in the number of starts, well in excess of the national average.

However, Marc Pigeon, president of the housing promotion group FPI, said the number of building starts was still less than the annual housing demand, which needed between
380,000 and 400,000 a year. Even the number of construction permits was lower than the 2006 record of 592,000.

Mr Pigeon also said there was a shortage of housing land and, unless this was put right, new house prices would rise, with the inevitable effect on older housing prices.

Paris-X university housing expert Michel Mouillart said the market would change once banks better understood PTZ+, which he said was a complicated product. It would not be
until the end of the first quarter before the banks got the hang of how best to market it.

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