Buying in France with a French Mortgage – a quick overview.
2018-10-12 Eleanor Moore 0
When deciding to purchase a property in France, there comes a moment when you decide how you are going to finance your property. Do you release equity in the UK? Use your savings? Take a French mortgage? An important factor to consider when making this decision is that you can’t just release equity or put a mortgage on a French property once you have purchased*, so whatever money you put into the property will remain locked in it until you sell. When considering this point, most buyers prefer to use a mortgage for the maximum leverage possible against the property in France so to keep their cash and equity free for other projects. Another advantage of a French mortgage, which is even more advantageous in times of currency volatility, is you’re minimizing your exposure against the GBP/EURO exchange rate – spreading the risk over a longer duration on minimal amounts that you will need to transfer each month as opposed to having to find £1000’s more, quickly to complete on the purchase in the case of a dip in value between the time of when you agree to purchase and the time when you complete and pay.
When buying with a French mortgage, it’s best to ensure that you qualify and find out how much you can borrow before you start your property search as eligibility in criteria in France differs greatly to the UK and other countries. For example, self employed persons and company directors are required to show three years of accounts, interest only mortgages can be frowned upon and if you frequently go over your overdraft facility this can result in a “non”! The general affordability rule is that your total monthly debt related outgoings (including the new mortgage payment) must not surpass more than 1/3 of your monthly net income before tax. On top of this rule, each bank has its own criteria and flexibility and a mortgage broker such as ourselves can help prequalify you using the criteria of its partner banks; which saves you going round each bank individually trying to work out what is, and what isn’t acceptable to them. Concerning the types of mortgages available and what properties can be financed, it is important to know that the French mortgage market is very conservative compared to the UK and that banks do not offer numerous mortgage products. Mortgage lenders are legally required to lend responsibly and not put the borrower at risk of being in too much debt or financial difficulty. They require that borrowers have life insurance on the mortgage and this is viewed as a security contrary to the UK. Only residential or buy to let properties can be purchased, the lenders won’t finance a business or commercial property and won’t provide a mortgage if you are giving everything up in the UK to move to France. They need to see that you will continue to have income. Mortgage products offered are often long term fixed interest rates – these offer financial security for the borrower as they give you the ability to plan ahead, knowing what your monthly mortgage payments are. A few banks do offer capped rate tracker mortgages also, these are variable mortgages which track one of the Euribor indexes, most typically the 3 and 12 month indexes, with a fixed margin and a cap on the maximum interest rate. Capital repayment mortgages are the norm and the majority of banks either don’t understand why someone would take an interest only mortgage other than for wealth management, or they view them as incredibly risky and sometimes won’t lend to someone who has one. Some banks do offer interest only mortgages but the eligibility criteria are very strict and they are not nearly as widely available as in the UK or the US. In terms of mortgage duration, because the mortgages tend to be fixed capital repayment ones, the banks like to keep shorter durations so not to overexpose themselves on the refinancing money markets. Durations of between 15 and 20 years are the most popular, with some banks offering 25 years to non residents and a maximum of 30 years to French residents. Deposit wise, a French bank will require that non residents (a non resident is classified as someone who’s income isn’t from a French source) put down a minimum of 15% - 20% of the property price as their personal deposit depending on the bank, with some banks asking for even more. This deposit is on top of the property purchase fees (notary, mortgage fees etc) that the bank will also require that the borrower finances. Your deposit money must come from existing savings or a gift, donation from family or friends. If it is from a loan from family, repayment terms must be clear as the bank must include them in your debt to income ratio calculations and some lenders simply won’t lend if you don’t already have the money. Another no go is releasing equity from your UK property in order to raise the cash for your deposit. The actual mortgage application process is the opposite to the UK, you can’t get a mortgage offer and then go property hunting, hence the necessity to get proper advice before starting your property search so to avoid wasted time and disappointment. Armed with a prequalification, you know how much you can afford and can make an offer on a property. Furthermore, it is reassuring for the vendors to know that you have already made the necessary enquiries regarding mortgage finance. Once you have found a property to purchase and had your offer to buy accepted, you will be asked to sign a Compromis de Vente which is the initial purchase agreement. This contract can be made (by law) subject to obtaining mortgage finance and it sets out the duration in which to apply for, and obtain, your mortgage, normally between 45 and 60 days from the signature date. For the mortgage application itself, a lot of documents will be required in order to confirm your identity, your income and employment, your outgoings, assets and provenance and existence of your personal contribution. It may seem as if the list is as long as your arm depending on how many bank accounts, loans etc you have as you will need to supply three months statements for each account held. It’s best to start gathering the documents before you sign the Compromis de Vente as you may have to order copies of some documents if you haven’t kept them and a bank cannot arrange a mortgage if the mortgage application is incomplete. The application process takes usually between 4 and 8 weeks depending on the bank and the time of year – beware that things take longer at certain times such as during the month of May when there are a lot of bank holidays or in August when things in France usually grind to a halt. Once you receive your mortgage offer there is a mandatory 11 day cooling off period before it can be returned to the bank so this must also be factored in on top of the processing time. French mortgages are debited from bank accounts in France, usually held with the mortgage lender and the life insurance is debited at the same time. Costs involved include the lenders arrangement fees which are typically 1% of the mortgage amount with a minimum of 1000 Euros, broker fees and the mortgage guarantee registration via the notary between 1 – 2% of the amount borrowed.
For more information, please contact Sharon Revol – email@example.com or call 0800 530 0673 from the UK or 0033 4 37 06 53 82 from elsewhere.
*with the exception of post finance mortgages which are available in the six months following the signing of the purchase deed.
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