Renewing a credit facility can be a sensitive topic for clients enjoying a Private Banking relationship. In this article, we discuss potential pitfalls surrounding the renewal of a credit facility.

A bullet loan is a loan where a payment of the entire principal of the loan, and sometimes the principal and interest, is paid at the end of the loan term. Bullet loans are an integral part of Private Banks’ wealth management toolkits.

Private Bank lending includes mainly mortgage and Lombard loans, when banks lend money to individuals who offer assets – typically shares and bonds, but sometimes other financial products – as collateral.

For private banks, lending has a number of advantages. The first is that interest payments provide an additional income stream. A second advantage, is that clients who have a loan, and in particular a mortgage loan, are less likely to leave than those who merely have deposits.

For High Net Worth clients, bullet loans offer benefits such as:

– Tax optimisation : the value of net taxable assets under French wealth tax scheme can be reduced by carrying a secured loan

–         Cash flow management : for obvious reasons, servicing an interest-only loan is less burdensome than servicing an amortizing loan

–         Cheap access to capital : in a low interest environment, raising capital against real estate assets is a great way to fund a wide variety of projects, including, in the case of entrepreneurs, investing in one’s own business

Bullet loans are normally arranged over terms of 3 to 5 years and rarely exceed 7 years.

Reaching the end of the contractual term is an important tollgate in a private banking relationship. Clients enjoying a “healthy” relationship are normally offered an option to renew their credit facility for 3/5 or 7 years at competitive terms.

However, it is not uncommon for lenders to impose new hurdles which can come in the form of:

a/ additional collateral requirements … in practice, banks require additional assets to be deposited before a credit line can be renewed

b/ an increase in the spread applied to the borrowing facility

c/ in extreme cases, a non-renewal of the credit facility

Updated in February 2018

Mortgage rates applicable to French fiscal residents (primary homes, second home, buy to lets): 

Rate        Term        LTV         Notes

1.00%       10 yrs         100%       Fixed for the term

1.30%        15 yrs         100%       Fixed for the term

1.55%        20 yrs        100%       Fixed for the term

1.92%        25 yrs        100%       Fixed for the term

1.20%        5 yrs           50%         Interest-only

Mortgage rates applicable to expats and non-resident buyers (second home, buy to lets)

Rate        Term        LTV         Notes

1.50%       10 yrs         70%       Fixed for the term

1.30%        15 yrs         80%      Fixed for the term

1.75%         20 yrs        80%      Fixed for the term

2.45%        25 yrs        80%       Fixed for the term

2,45%        20 yrs        85%       Euribor Tracker

1.75%        20 yrs         85%       Capped rate for 7 years

2.50%       14 yrs          75%       Interest-Only

Subject to status and valuation.

With French mortgage rates reaching all-time lows, 2017 could be the perfect time to refinance a euro denominated mortgage loan.

We are pleased to provide you with a few simple guidelines to determine whether it makes financial sense to explore re-mortgage options.