Overall picture:

• Historically low Euro € interest rates, but they will start rising by Q4 2010.
• The recovery may not have much of a "feel good" factor yet but this upturn may be the start of the 6th Kondratiev wave and run for 40+ years.
• Impossibility of getting a sensible real return on savings deposit accounts.
• Increasing French mortgage affordability as the Euro falls into Q3 2010 and beyond.
• French housing market now past the bottom, with house prices again rising.
• UK election uncertainties resolved by Conservative / Liberal Democrat coalition.
• Euro zone financial plan gaining market confidence.
• 85% + probability that we will see significant inflation after 2011.

A return to inflation post 2011 as the central banks quantitative easing washes through the global economy will drive property prices rapidly higher in money terms.

Our monthly French market trends report is reviewed and updated after each month's ECB (European Central Bank), BoE (Bank of England) and US Fed (Federal Reserve Bank) rate review meetings, which are usually held mid-month.

Because many of the trends reported on should be expected to run for longer term than a month our analysis and commentary will not necessarily change each month.

For day by day news and comment go to the Best French Mortgage Blog

DJR, 20th July 2010

The news from the meetings of the European Central Bank and the Bank of England continue to confirm our analysis and our forecasting models, but doesn't bring us any closer to agreeing with their overall view as to where the economy is now.

Here's why.

We see a global economy that is pulling out of recession faster than the commentators are predicting and which is in danger of being over-stimulated to such an extent that we will be impelled into a future round of high inflation, especially property price inflation, and higher nominal interest rates.

Here's our some of evidence:

• In 2007-08 the Central banks were slow to recognise the onset of recession and initially intervened too little and too late. At the time they were criticised for "driving in the rear view mirror" and we think they still are. They are more focused on Q4 2008 than on Q4 2010. Add in a probable but covert 2010 UK election stimulus (feel good, vote for us!) and watch UK inflation jump in 2011.
  
  
• QE (quantitative easing) is claimed to be a new policy tool and the commentators are speculating that it may not work. We know from the "monetarism" experiment of Milton Friedman and the Chicago school in the 1980's that suddenly and significantly reducing the money supply can bring an economy to a screeching halt in months, as happened in the UK and US. So if the technique works when it's called monetarism and the money supply is reduced, it's perverse to believe it won't work when it's called QE and the money supply is increased.

• The corporate banking sector has recovered rapidly, an early indicator that the corporate sector is recovering.

• Global stock markets have already priced in a recovery.

• Purchasing managers indices around the world are starting to indicate that the de-stocking cycle has ended and output volumes are rising above 50, the level which indicates positive growth.
  
  
• Smart professional analysts are hurriedly revising Kondratiev wave theory and the commentators are re-discovering Bob Beckman, "a man whose predictions were 25 years ahead of their time" and his seminal book "The Downwave: Surviving the Second Great Depression" whose predictions are at last coming true. Both point the way to a long period of recovery and growth, the 6th Kondratiev wave.

There will undoubtedly be setbacks in the coming months but overall we stand by our present long term view.

Since Q1 2009 we have been cautiously optimistic, based on our long term view of economic cycles. Our positive view has been unfashionable with most commentators who had taken a pessimistic if not downright negative view of future prospects.

We have consistently argued that the French property market is not the place to be if you hope to make a short term speculative killing, but that if you are making a long term commitment to a principal residence or holiday home you have one of the best opportunities to be seen for 25 years.

House prices were depressed but are now begriming to rise, interest rates are very low and exchange rates have started to turn against the Euro and in your favour. With a mortgage fixed at today's rates it's difficult to see a better medium and long term investment.

So, if you're thinking of buying in France, you need to factor into your thinking that French property prices are probably now as low as they're going to get and fixed rate mortgage rates may not be as low as this again for another 60 years.

The balance of risk is that if you delay a purchase you're likely to end up paying more for the property and missing the best mortgage deals for a generation.

Market commentary in the Anglophone world about banks withdrawing from the mortgage market may leave you wondering whether it will now be harder to get a French mortgage. Best French Mortgage clients will not be subject to any mortgage rationing by French banks because French banks trust Best French Mortgage to introduce creditworthy clients. French banks are continuing to make mortgages available to creditworthy clients and on excellent terms.

The lower the LTV (Loan to Value ratio) you require, the better the rate you will be offered. French banking regulations require clients to maintain an indebtedness repayment ratio of one third or less, so taking a mortgage over a longer term or raising a slightly larger deposit can be helpful. As always in times of uncertainty, marginal applications may be looked at more carefully, but we have developed strong relationships with our partner banks and are confident in our ability to source property finance on excellent terms for creditworthy clients.

Remember, as an honest French mortgage broker, we don’t charge our clients any fees for arranging mortgages. To find out what type of mortgage we could find for your French property project, just complete the no obligation application form.

Our view, formed from analysing all the recessions back to the late 1800's, is that we're been through a couple of tough years with a noticeable "feel bad" factor. But over 90% of people will have keep their jobs, the £ Sterling will recover to around €1.35-€1.40 and the coordinated policy from the US Fed, European Central Bank and the Bank of England will ignite a bout of asset price inflation beginning around 2013. For the first time in a long time the advice to those seeking the French lifestyle and those wanting a good investment is now the same - buy French property on a Euro mortgage.

Surprised? Well, here are the investment facts.

1. Interest Rates. The Fed has maintained its key interest rate in the target range of 0% to 0.25% and in an acknowledgement that interest rates can't go lower has injected hundreds of billions of dollars by way of "quantitative easing" (or printing money if you're not an economist). However, though the key rates are being held low, the rate for emergency loans has now risen 0.25%to 0.75% and this probably marks the low point in the global interest rate cycle. In Europe the key rate was lowered to 1% and in the UK the key rate is now 0.5% with £200 billion of quantitative easing. It's going to be difficult for money to get much cheaper, unless the banks decide to pay you to borrow and we don't foresee that ever happening. House buyer's conclusion - Lock in these low rates for the whole of the next interest rate cycle while you can.
   
   
2. Jobs and Wages. Unemployment will probably peak in the second half of 2010, and it will be very painful for those that lose their jobs. Against that, over 90% of us will stay employed and though the growth in our pay packets may stall for 1-2 years we will actually have a surprising amount of cash to spare because near term price inflation is very firmly in check. The pound in your pocket is going to go further. House buyer's conclusion - This is not the doomsday scenario, the vast majority of you will lose neither your jobs nor your purchasing power.
   
   
3. Exchange Rate. The pound is presently very low and the dollar depressed. What happens next is going to be a weakening of the Euro. We expect Sterling to return to around €1.35-€1.40 by the end of 2011. If you are buying Euros we can help you get the best exchange rates by sourcing your Euros at money market rates – much cheaper than buying over-the-counter- here's how. House buyer's conclusion - Don't pay cash, take a mortgage and repay when the Euro has fallen.
   
   
4. House Prices. The French market did not inflate to the same unsustainable levels as the Anglo-Saxon markets. Prices have fallen but are again on the way up and market liquidity is recovering. House buyer's conclusion - Prices at this level offer outstanding long term investment value and as these low prices won't be around for long delaying a purchase in the hope of a future lower price is now plain unrealistic.
   
   
5. Inflation Outlook. "Quantitative easing" means quite simply "we're going to print money like there's no tomorrow, until we have inflation running out of control again". Anyone remember the 1970's when house and gold prices took off because they represented the only tangible value? Anyone heard of the Zimbabwe dollar? - they're printing money right now! Printing money (i.e. increasing the money supply) will ease the economic situation in the short term but it won't increase the real stock of wealth so eventually real asset prices (gold, land, property etc.) will go up. House buyer's conclusion - Property will soon return to being the best hedge against inflation that most of us have access to.
   
   
6. Overall Investment Strategy. The people that make money from investing are often those that take a "contrarian investment view". Contrarians buy when prices are depressed and sell when prices are high. So let's pull the the threads together and see what the facts suggest. Historically low interest rates, a 90+% probability that you won't have been personally affected by the recession, increasing mortgage affordability as the Euro falls, a housing market just past the bottom and the probability that we will see significant inflation after 2013. There may even be a return to 1970's style "Stagflation" which will drive property prices rapidly higher in money terms. Is that a "buy signal" or is that a "buy signal"? If you already own French property there is an alternative strategy you can use to benefit from these very unusual market conditions - click here to find out more.

The French financial services industry operates very differently to that in the UK and the USA. This is nowhere more true than the way that shopping around for the best deal can actually increase your mortgage costs by up to 2.5% of the cost of a mortgage: this can amount to a staggering €2,500 on a €100,000 mortgage.

Because French banks only pay commission to the broker that first introduces a client to them, by going first to a broker that charges its clients an arrangement or dossier fee you prevent any other, honest, broker from providing a no fee mortgage offer from any bank which has already been approached with the application to borrow.

In France the role of the mortgage broker is to shop around for the best mortgage deal on your behalf, so shopping around between mortgage brokers will not necessarily produce a better deal and may end up costing you money.

The best strategy is to go to a reputable no fees broker in whom you have confidence and only consider shopping around other brokers if your first choice can't help and never go to a fee charging broker first.

Our advice is that you should be very sure that you are working with a reputable professional broker with a personal depth of financial sector experience and who is genuinely working in your best interests. Go to our Consumer Guide page for a simple checklist to keep you safe.

Because French banks rely on mortgage brokers to introduce serious clients, the cost of the introduction is included in the bank’s mortgage rates whether or not a mortgage broker is involved. You cannot get a cheaper mortgage rate by going directly to the bank. Often, it’s the reverse: special offers and negotiated conditions are only available through brokers.

Some long-established French brokers have become accustomed to charging their clients a mortgage arrangement fee or “dossier” fee. In effect, this means their client, you the borrower, is charged twice for the same service.

Double charging came about because the mortgage broker was able to “help” the more marginal French clients secure finance, but it just won't go away. When traditional French mortgage brokers, some established more than 25 years ago, began to seek overseas clients they decided to maintain their double charging practice, with some lifting the arrangement fees to levels higher than French borrowers are charged, supposedly to pay for bi-lingual staff.

Best French Mortgage will always suggest the best French mortgage available, taking into account your individual circumstances, and always without any form of brokerage fee, arrangement fee or other charge. Go to our section on French mortgage broking charges for a fuller explanation 

Most economic forecasting models are what is known as econometric models and use techniques such as:

• Simultaneous equations
• Economic base analysis
• Shift-share analysis
• Input-output models
• Grinold and Kroner models

They are generally good at predicting a continuing trend but much less helpful at predicting turning points in the economic cycle.

We, by contrast, use:

• Neural networks
• Monte Carlo simulation
• Box Jenkins models

running on long term time series data which we find produce very accurate probability forecasts and are especially good at forecasting changes in the direction of a trend.

If you would like to discuss our methodology please feel free to contact us here.