Until 1487, relationships were going swimmingly between England
. Trouble began to arise as the future of Brittany
came into question.
Brittany was the only remaining part of the historic Kingdom of France that retained its independence - Duke Francis ruled it and was not keen to relinquish his position. France's regent was Anne Beaujeau, as the infant Charles VIII was still too young to take power for himself (in fact, the regent retained power even after Charles' minority, mainly because of his incompetence).
Anne attempted to marry Charles VIII to Duke Francis' daughter, and she was quite intent on achieving this goal. In 1486 Duke Francis arranged for his daughter to marry Archduke Maximillion, but they only ever married by proxy so it was nothing more than symbolic. The result of Charles VIII's marriage to Francis' daughter would be, of course, French annexation of Brittany.
Many people resisted this annexation. Ferdinand of Aragon resisted it on the basis that he didn't like France. Henry VII of England resisted it on the basis that Duke Francis had been extremely helpful to him in his years in exile, had financed the Battle of Bosworth and that it would be foolish to allow France to control the entire southern side of the English channel.
Few of these countries could afford to put their military where their mouth was, however - they all had problems at home. Spain sent a mere 1,000 troops, and Maximillion sent 1,500. Henry sent a small mediating force led by Lord Scales, but he did not give this force his initial endorsement. If things turned pear-shaped, Henry could deny accountability.
France defeated the Breton army in 1488, and Duke Francis died shortly afterwards. The result of this was that Anne of Brittany, Francis' daughter, became ward of Anne of Beaujeau... who promptly marries her off to Charles VIII, and Brittany becomes part of France by marriage.
The person to come off worse from this was Henry VII. He was in a relatively weak position on the European stage, being as he was a usurper and a peaceful King. He had to appear regal and strong to the international community, and he had "lost" this confrontation. A war was on the cards.
There were reasons to go to war with France - England and France were traditional enemies, Franco-Scottish relations were particularly weak at the time and the Scottish King was a minor, so there was little danger of an offensive from the north. Also, Henry managed to raise £181,000 from parliament for a war.
There were of course many reasons not to go to war, and these were much more persuasive. France was a lot bigger than England, and had a standing army. An invasion would not receieve the support of England's allies. Also, the French were currently mainly concerned with the Italian Wars - it might be unwise to encourage them to turn their wrath back to the north of Europe.
So Henry went ahead and negotiated the Treaty of Etaples in 1492, which agreed that England would withdraw their troops from France, but France would pay England a pension of £159,000 over five years. France would also no longer harbour English Yorkist rebels.