Understand the new cycle beginning for property in France

High interest rates and tough lending rules have hampered the property market since 2022, but experts suggest 2024 may be a better year

A view of model houses on coins to show property market fluctuations
The property market has been struggling lately due to high prices and interest rates, with the picture still looking mixed - if slightly brighter - for next year
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Property in France is said to follow a ‘cycle’, and is currently experiencing a ‘crisis’ - but there are some small signs of improvement for 2024, say industry experts.

Since Autumn 2022, the property market has struggled, with a December 11 report from le Conseil supérieur du notariat finding that transactions dropped 18% between September 2022 and September 2023.

“We are seeing a pause [after years of boom],” said Pierre Madec, economist and housing specialist at the Observatoire français des conjonctures économiques (OFCE), to FranceInfo.

Interest rates have soared, it is more difficult to access mortgages and loans, and house prices remain high despite buyers’ lower purchasing power, experts say.

And sellers have dropped their prices by just 0.2% in a year despite these factors, said Thomas Lefebvre, scientific director of the Meilleursagents.com and SeLoger.com websites. Yet, he said that even a tiny fall is still a sign of a new ‘property cycle’, as it is still a major contrast to “increases of 5-6%” seen in previous years.

A new cycle and dropping prices?

Property prices are, in fact, likely to drop according to buyers’ purchasing power, which can vary significantly by region, said Mr Lefebvre.

In Lyon, for example, prices fell by 7.1% year-on-year to December; and in Paris, prices have fallen by 5.4% over the last 12 months, falling below €10,000m2 in September for the first time since 2019.

Wealthy areas such as in Nice still bucked the trend for much of the year, but even those have now started to fall. Prices in the Côte d'Azur city had risen by 2.5% year-on-year by September, but fell by 1.6% over the last three months.

Read more: Falling prices but not everywhere: a review of French property market

Yet, Mr Lefebvre believes prices are currently still too high to “get the market moving again”, given households’ continuing lack of purchasing power.

“To return to equilibrium, prices would have to fall by around 20-25%,” said Séverine Amate, a property market specialist.

Hope on the horizon?

Interest rates are not currently expected to fall significantly until at least 2025 as inflation continues across Europe. However, the worst does appear to have passed, meaning that rate should “stabilise at around 4-4.5% [next year],” said Mr Lefebvre.

Property prices could also drop in response to market conditions next year.

“The number of properties for sale is increasing and homeowners who are forced to sell will have to accept price cuts to reflect the new financing conditions for the public in France,” said Mr Lefebvre. The MeilleursAgents.com website expects prices to fall by around 4% in 2024.

The government has also announced some measures in a bid to improve the situation, including new plans to extend the range of households that can have access to the prêt à taux zéro loan scheme (zero-interest loan) for those who want to buy new flats in high-tension areas, or to buy older homes that need renovations.

In mid-November, Prime Minister Elisabeth Borne announced new measures to support housing construction, while the Economy Ministry and the Banque de France have also said that the stringent rules for mortgage borrowing are likely to be relaxed next year.

Context: Why have interest rates risen?

Interest rates had been very low, at an average of 1% since 2016. But from Autumn 2021, the economic landscape changed.

“We had got used to very low rates - effectively free money - and that was fuelling the property market,” said Mr Lefebvre.

But increasing commodity prices, as well as the war in Ukraine, contributed to high inflation. This prompted the European Central Bank (ECB) to raise its key rates repeatedly, causing a knock-on effect for private individuals borrowing from high-street banks.

By the end of November 2023, the average rate on home loans was around 4.3%, a level not seen since April 2009. The highest rate before that was 5.1% in November 2008, during the ‘credit crunch’.

Tougher rules on loans

Banks have also made it more difficult to access loans and mortgages in France over the past 12 months.

Since 2022, financial council le Haut Conseil de stabilité financière has banned loans if the monthly repayments exceed 35% of the borrower’s income, and repayment periods have also been limited to 25 years.

This contributed to the number of home loans being granted falling by 43.5% year-on-year from October 2022 to October 2023, said the Observatoire Crédit Logement.

What effect has this had on property?

Households’ borrowing capacity has been severely limited which has hit first-time buyers the hardest.

In one example, a couple with a monthly income of €4,200 would only be able to borrow €228,000 over 20 years at 4%, compared with €300,000 at 1%. At €72,000 less, this could mean the difference between them being able to afford a property or not.

“Today's property market excludes first-time buyers,” said Ms Amate. “Unless you have a family that can help you finance a down payment, you are de facto left out of the market.”

Another specialist added that the percentage of first-time buyers from low-income households has dropped by 10% over the past three years, and many of those who have still managed to buy have been forced into homes that are 20% smaller.

So, should buyers hold off on buying a property right now?

Many would-be buyers have stayed put in today’s market, with only those who truly must move - due to work or a separation, for example - going ahead with a purchase.

Some are postponing their plans, waiting to see if interest rates and property prices will fall.

Read more: Is now the right time to buy or sell property in France?

Yet, Mr Lefebvre said that “solvent buyers” may still be in a strong position to buy now, and - in a market with fewer buyers overall - have the power to negotiate and force sellers to drop their price. Ms Amate also highlighted that properties with poor energy certificates may also see their selling price reduced.

She said: “A poor energy performance diagnosis (F or G) can result in a discount of between 5% and 14% on the price of the property.”

“There is no point in jumping into the market [unless you have to],” said Mr Lebevre. But “it is not necessarily a bad idea to keep an eye on the market and continue to work on your property project”, he said.

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