The 1Q10 trend in French housing lending has confirmed strong activity in the sector, according to data released by the French residential funding monitoring agency (OFMR CL-CSA).

The agency released 1Q10 data on lending activity and affordability, and preliminary figures for April.

New home sales activity is very active and is linked to the existence of subsidized loans and tax incentives. Renovation loans have also been strong, which Societe Generale analysts said might be explained by the low interest rate environment.

The existing homes market on the other hand is progressing slowly. "The borrower population has started to change, with the share of younger borrowers declining in comparison to older ones," SocGen analysts said. "The latter might well be wealthier than the former, and might consist of owner-occupiers climbing up the housing ladder, or acquirers of investment properties. This is why it is important not to assume that new home sales only consist of first-time buyers. The increase in bridging loans — which are taken out for the time between the acquisition of a new home and the selling of the previous one offers another indication that the existing home market might be unfreezing."

Interest rates for housing lending continue to decrease, standing at 3.64% on average in 1Q10. Between April 2009 and April 2010, the average interest rate has fallen by 79 basis points to 3.48%, and it has dropped 167 basis points since the last peak in November 2008.

At the same time, loan maturity also continued to decrease and now stands at 211 months, six months less than in 4Q09. LTV is also still falling, and currently averages 78.2%.

The overall cost of transactions continues to increase. This could indicate a rise in housing price. Despite the lower interest rate, the affordability index is falling.

The government's current supportive measures is expected to be revised on June 30. The expected reduction in total home loan subsidies is still under discussion and SocGen analysts said that the market participants fear it is still too soon for the housing market to walk on its own two feet.

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