PARIS: The traditional French aversion to risk and debt is being turned on its head as rock-bottom interest rates and tax breaks push investors into real estate, boosting banks’ mortgage lending and their client revenue.
The worry is not that a subprime-style fiasco is in the making, but rather that these trends are unlikely to last.
French housing loan issuance doubled in the 12 months to Nov. 2010, according to the Banque de France, to 145 billion euros ($198.3 billion) — eclipsing mortgage stagnation in crisis-scarred Spain and a 7.9 percent decline in Germany.
House prices in France also outpaced Spain and Germany with an 8.6 percent rise in the third quarter of 2010, according to the Royal Institution of Chartered Surveyors, driven by a cocktail of ultra-low interest rates and government incentives to spur home buying.
Such growth is not a ticking time bomb for domestic lenders like BNP Paribas and Credit Agricole, analysts say. French household balance sheets are solid, lending standards are tight and according to Deutsche Bank France has one of the lowest mortgage-to-GDP rates in Europe at 35 percent.
“Housing loans in France are of a significantly higher quality overall than in a lot of other countries,” said Christophe Nijdam, analyst with Alphavalue. He said France lacked the kind of helter-skelter securitisation that had encouraged U.S. lenders to take big risks in the past.
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