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Housing Finance Market Overview
In France, housing finance is mainly raised from (deposit) banks and specialised mortgage banks like the Crédit Foncier. Mutual and co-operative banks as well as commercial banks held a share of 53.6 per cent and 34.6 per cent respectively in terms of home loans balances at the end of 2006, with the mutual bank Crédit Agricole being the market leader. The housing finance market has seen a considerable boom in France since the year 2000. The mortgage debt to GDP ratio increased from 21.2 per cent in 2000 to 34.9 per cent in 2007.
The Market from the Perspective of the Demand Side
The usual maximal loan-to-value ratio amounts to 80 per cent and the loans are either fixed-interest loans (for the most part) or variable rate mortgage loans (annual adjustment on the basis of an index). There are two long-term savings plans on which the government pays an interest bonus that offer (after a certain minimum lifetime of the plan) for customers the chance to take out a mortgage loan at a reduced rate. In 2007, the Constitutional Council, the highest court in France, struck down the mortgage interest deduction (which was enacted in the same year) as unconstitutionally.
House Price Development
Housing prices have risen fast since the year 2000 with an average annual growth rate of almost 11 per cent till 2007. Therefore, in the course of the financial crisis, house prices have already declined from the end of 2007 to the end of 2008 by almost 6 per cent.
Special Characteristics of the Market
France has a contractual savings system, the épargne logement system which is characterized by low interest rates on loans and a government interest premium paid on savings. In principal, it can be offered by all deposit banks.
Deposits are for the banks the main source of funding for their mortgage market activities. The specialised mortgage banks refinance exclusively and banks partially by issuing Obligations Foncières (Covered Bonds). As only specialised credit institutions are allowed to issue Covered Bonds in France (Sociétés de Crédit Foncier and the Caisse de Refinancement Hypothécaire), the banks do not issue the bonds directly but by turning to subsidiaries adhering the specialised banking principles required by law. Almost 10 per cent of the outstanding residential lending can be attributed to them. The securitisation of mortgages plays only a minor though possibly growing role in France.