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ECONOMY

Is now a good time to buy a home in France?

Looking to buy your dream home in France, but not sure whether it is a good time? Here's a look at the current state of the property market and the financial factors that you will need to take into consideration.

Is now a good time to buy a home in France?
Photo by MOHD AZRIN on Unsplash

For most people the decision on when to buy a house rests more on personal factors – getting a new job, retiring, starting a family etc – but you still want to make sure that it’s a good time financially.

Here’s a look at the factors that are currently influencing the French property market.

The French economy

Amid rising inflation and a cost of living crisis due to the ongoing war in Ukraine, French officials, such as Bank of France governor Francois Villeroy de Galhau have begun issuing warnings that the country may be headed for a “limited recession” next year (2023). 

Meanwhile, the European Central Bank (ECB) announced an unprecedented increase in its key rates (0.75 points) on Thursday. This decision marks the biggest interest rate rise in the ECB’s history, as the eurozone economy attempts to cope with inflation.

Whether or not the market is currently in your favour depends largely on whether you plan to purchase your French home with a mortgage or without one, as well as the currency that your assets are in. 

Buying with a mortgage

It is most likely not a good time to begin the process of buying a home in France with a mortgage, though of course this depends on your individual financial situation and employment status.

As the ECB increases key rates, interest rates in France are also expected to rise, explained Laurence Scialom, a professor of economics at the University of Paris Nanterre to Franceinfo

In France, average borrowing rates had already risen from 1 percent in January to 1.9 percent in early September. These rates could reach 3 percent by the end of the year, according to estimates by France télévisions. 

Additionally, lending requirements – which were already strict – are set to become more stringent. Between spring and fall of 2022, nearly one out of two mortgage applications were denied.

For first time buyers, buying will become even more complicated. The president of the Century 21 network, Charles Marinakis, told Le Monde that “first-time buyers could be pushed out of the market” because living wage is “a determining factor for obtaining a loan.”

Scialom explained that for banks, the cost of living crisis will necessitate stricter requirements for loan applications “because many people will face an increased financial fragility.”

Buyers in precarious financial situations will also have to strongly consider the presence of other fees and taxes. 

Buying without a mortgage

If you are looking to purchase property in the coming months, but you plan to do so mortgage-free, then your situation is very different to the one described above. 

If France does indeed enter a “limited depression,” this would likely lead to a decrease in real estate prices, making it cheaper for you to buy. 

Additionally, if you are American, you could benefit the euro to dollar exchange rate. The single currency is currently trading at near parity with the dollar, which is the lowest level in over a year. In comparison, on January 1st of 2021, the exchange rate was €1 EUR = $1.2134.

However, the ECB’s goal with raising key rates was in part to increase the strength of the euro to the dollar. It is possible the exchange rate will begin to move toward a stronger euro in the coming months. While the exchange rate will not return to 2021 levels over night, it would still be advisable for Americans looking to buy in cash to take advantage of the current exchange rate while it is still in place. 

Property prices in France

The association of French notaires published a report on September 6th, which indicated that during the last year the price of houses and apartments in France has increased by nearly 7 percent.

When looking at 2021 trends, apartment prices increased by approximately 5.2 percent, while houses went up 9 percent, according to Nexity. These figures tend to confirm the trend of buyers seeking out homes in the countryside rather than apartments in city centres in the periods following lockdowns during the pandemic.

These tendencies remained somewhat present in 2022 as well. Specifically by region, the Provence-Alpes-Côte d’Azur département saw real estate average prices per metre increase by 15.5 percent between 2021 and the first half of 2022. Brittany also saw large increases (+13.2 percent). 

In Hauts-de-France, Pays de la Loire, and Île-de-France (excluding the city of Paris), prices decreased marginally by 0.1 percent, 0.2 percent, and 0.4 percent respectively. 

MAP Where you can buy a house in France for less than€100k

The table below shows the evolution of prices for apartments in Ile-de-France, according to French daily Le Parisien, as of September 1st.

When looking ahead, the European market as a whole “remains characterised by a limited real estate supply and a still strong demand for housing” explained chief economist for S&P, Sylvain Broyer to Le Monde.

“Supply is very inelastic in relation to demand, and when demand falls, many sellers withdraw their properties from the market rather than sell at a price lower than their expectations; this is typically the case in the Paris market and in the major capitals.”

The economist predicts that property prices across Europe – and including within France – will rise more than household incomes in 2024. He expects that rising interest rates will be particularly problematic for “first-time buyers, young people and less well-off households.

As for Paris specifically, prices are increasing at a lower rate than the other parts of the country. The real estate firm Meilleurs Agents released data showing that as of September 6th, 2022, real estate prices in Paris had decreased by 1.2 percent in one year. 

Other costs

As well as the price of the property, there are some other costs to take into account, the biggest of which will probably be the notaire fee.

Despite its name, only a small portion of the notaire fee goes to the notaire handling your sale, the rest goes to the state so really it’s a property tax.

CALCULATOR How to work out your notaire fee

There’s also the costs associated with the purchase such as real estate agent fees, and once you have the property you need to remember to budget for the two annual property taxes.

REVEALED The hidden costs of buying property in France

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POLITICS

France plans cuts to its generous unemployment system

France's prime minister, Gabriel Attal, announced plans to change the country's famously generous unemployment benefits system - cutting both benefits paid and how workers qualify for them.

France plans cuts to its generous unemployment system

During a televised interview with TF1 on Wednesday, France’s prime minister Gabriel Attal announced that the government would seek to reform the unemployment benefits system this year. 

Attal said that the goal would be “to have the parameters of the reform prepared during the summer, so that it can come into force in the autumn”.

This would mark the third time that the system – which has a budget of €45 billion per year – has been reformed under President Emmanuel Macron’s tenure. Previous changes have included adding extra requirements for job-seekers to search for work and undertake training courses.

Can you really get €6k a month on benefits in France?

During the interview, Attal laid out a few options for reform, without offering specific details.

Why change the system now?

The announcement came after it was revealed on Tuesday that France’s budget deficit had reached €154 billion – or 5.5 percent of GDP – and was set to rise even further over the next two years unless action is taken.

Both president Emmanuel Macron and his finance minister Bruno Le Maire have ruled out tax rises, and say that the money can be found through cuts to state spending. Attal echoed this during his interview with TF1.

Le Maire will present a package of cuts to ministers of April 17th, entitled the programme de stabilité (PSTAB).

OPINION: France has been in denial for decades about its ‘magic money tree’ spending

But reforming the unemployment system was on the cards even before the budget deficit news, as the president attempts to push France toward ‘full employment’ – defined as 5.5 percent of working age people officially without a job – by the end of his term in 2027.

In the fourth quarter of 2023, the unemployment rate in France reached 7.5 percent of the working population, according to data published by INSEE.

How could unemployment be modified?

Attal discussed several possibilities for reforming the system on Wednesday, each focusing on the parameters that are considered when applying unemployment benefits.

READ MORE: How generous is France’s unemployment system?

The first is the duration of the compensation. Currently, you can receive unemployment benefits for up to 18 months at a time if you are aged under 53; 23 months if you are 53 or 54; and 27 months if you are 55 and over. 

That being said, most people are not unemployed for that long.

This in itself is one of the previous reforms taken under Macron’s term – in February 2023, France reduced the unemployment compensation time from a maximum of 24 months for under-53s to 18 months.

Attal said that one option would be to reduce the duration of compensation “by several months (…) but I don’t think it should go below 12 months.”

The second option would be to increase the number of months required for one to access the benefit. As things stand, workers must have been employed for for at least 6 months (130 days or 910 hours) in the previous 24 months – there is no limit on the number of employers you have worked for in that time.

The period rises to six months in the previous 36 months if you were 53 years old on the end date of your last employment contract. 

Attal said: “We can imagine either saying – we need to work for longer or that the six months should be assessed over a shorter period.”

As for the third option, it would involve changing “how much you earn and how much this decreases [over time] to encourage people to return to work”, Attal said, without offering further details as to how the calculation of the benefit would be altered.

The current system determines the amount of monthly unemployment benefits based on percentage of your previous salary, rather than a flat rate. The gist is: the more you earned, the more you’ll get.

It’s worked out according to a rather complicated formula that gives job-seekers around 57 percent of average salary during their last 12 months of work.

There is a ceiling to this – the maximum amount is €6,615 per month (although you would need to have been earning more than €10,000 a month previously in order to get that).

After 12 months of unemployment, the rate is reduced and a new rule means that people under the age of 57 who previously earned more than €4,500 a month have their rate reduced after eight months.

Attal said this third possibility is “less to [his] liking than the previous ones, but we will let the experts and stakeholders work this out.”

READ MORE: How France’s bid to tackle ‘wild’ budget deficit could impact you

Would this bring France in line with its neighbours?

France’s current system is more generous than many of its European neighbours, especially due to the fact that benefits are offered after just six months of work.

In Germany, workers must have been employed for at least 12 months over the last 30 months in Germany to be entitled to six months of compensation. 

Meanwhile, in the UK, the minimum amount of time worked must have been at least 12 months over the last two years – longer than France’s six month minimum as well.

Several other European countries also apply a flat rate the benefits, rather than France’s percentage system.

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