AFFORDABILITY
Rather than using
earnings multiples to decide
how much you can borrow,
French lenders work on debtto-
income ratios. As a rule, the
French lender will allow
between 30 to 40% of your
gross income to be used to pay
all existing mortgage and loan
commitments in addition to
your new French mortgage.
BRIDGING FINANCE
Bridging loans between
one French property and
another are available in
France. However, French
lenders are generally reluctant
to do this unless you are
planning to take out a longterm
loan on your property.
CURRENCY EXCHANGE
Using a currency broker is
strongly advised when
transferring money to France.
Whether you are transferring a
large sum to purchase a
property in cash, a smaller
amount for a deposit or already
making monthly mortgage
payments, a currency broker
will provide you with
substantial savings compared
with a high street bank. It is
important that you use an
established and secure foreign
exchange provider.
DEPOSIT
You generally pay your
deposit when you sign the
compromis de vente (sales
contract). The deposit will
normally be around 10%
of the purchase price of
the property.
EURIBOR
The interest rate you pay
on your French mortgage will
almost certainly be linked to
the Euribor (European
Interbank Offered Rate). The
exact rate you pay depends on
which Euribor index the
mortgage product tracks. The
most common index is the
three-month rate, although the
six-month and 12-month rates
are also frequently used.
FEES
The fees associated with
purchasing a property in
France are slightly higher than
those in the UK. Estate agency
fees (usually 4-10% of the
purchase price) are payable by
the buyer, although there is a
perception among vendors that
property prices are cheaper in
order to compensate for this. If
you are raising a mortgage on
the net purchase price, it is
important to understand how
much of your purchase price is
made up of agency fees.
Notaire’s fees (around 7.5% for
a resale property, 3% for a
new-build) are also charged to
the buyer, the bulk of which is
tax that goes to the French
government. If you are taking
out a French mortgage, you
would normally expect to pay
an arrangement fee to the
lender of around 1% of the
loan amount. You will also pay
an additional notaire’s fee of
around 1–1.5% of the loan
amount to register the deed of
the mortgage.
GÎTES
Most French lenders will
not finance gîtes. For those
that do, affordability is
calculated like a normal
purchase; you will need to be
able to prove to the lender that
you have sufficient income to
service the mortgage. The
rental income produced by
the gîte is very unlikely to
be taken into account by
the underwriter.
HYPOTHEQUE
This is the generic French
term for a mortgage. It is the
charge taken over the property
and is therefore a term that
will come up fairly regularly.
There are different types of
charge depending on the
type of transaction you are
looking for.
INSURANCE
In order for the notaire to
be able to complete your
French purchase, you will
need to ensure your
property is properly insured.
Be aware that many French
buildings and contents
insurance policies don’t
include public liability cover
– important if you’re renting
the property out – or cover a
holiday home that is left
empty for more than 30 days
at a time.
JOINT APPLICATIONS
If purchasing a property
under more than one name, all
the buyers must be included on
the mortgage application. If
you and your co-purchasers
live in different households, be
aware that lenders will
generally expect all applicants
to be able to afford monthly
repayments on their own.
KNOWLEDGE
Always ensure that things
proceed as smoothly as
possible by talking to all the
relevant experts. Independent
legal and tax advisers, foreign
exchange specialists, French
mortgage advisers, and
buildings and contents
insurance providers, can all
save you a lot of time and
money in the long run.
LOAN-TO-VALUE (LTV)
The maximum LTV available
on a mortgage in France is
typically 100% of the net
purchase price. Strict criteria
must be met to secure these
products. As a rule, a 15–20%
deposit is required to purchase
a French property with
the most widely
available mortgages.
MONTHLY REPAYMENTS
A quirky rule often associated
with French mortgages is that
when the mortgage interest
rates change, your monthly
repayments do not alter.
Instead, the term of the
mortgage is modified. If
interest rates go down the term
of your mortgage will shorten,
and if they go up the term of
your mortgage will extend.
NOTAIRE
The notaire looks after all
legal aspects associated with
completing the French
property purchase. Notaires are
employed by the French state
and also collect the taxes
incurred when buying property
in France.
OFFER
Once your mortgage
application has been approved,
your mortgage offer will be
issued and sent out to you via
courier. Under French law, the
offer cannot be returned until
an 11-day ‘cooling-off period’
has expired. If you post-date
the offer and return it before
this 11-day period has expired,
the offer will need to be reissued
and the cooling-off
period will start again.
PENALTIES
Fixed-rate mortgages in
France generally have early
redemption penalties during
the fixed period, when
overpayments are subject to a
surcharge of around 3% of the
outstanding capital. Variable
rate mortgages generally don’t
have redemption penalties,
unless you are changing your
mortgage from one lender to
another. There are always
exceptions to these rules, so
ensure you are well-informed!
QUOTE
It is often difficult to
obtain a mortgage quotation
from French lenders before you
have made an application with
them. The rates and products
available will always depend
on your financial situation, and
may also depend on the
number of other products
(insurances and credit cards, for example) that are taken
out simultaneously. A good
French mortgage broker will
be able to assess your
circumstances and provide
you with a quote based on
the mortgage products you
qualify for.
REPAYMENT
Most mortgages in
France are taken on a
repayment basis. Interestonly
mortgages are
available, but they most
generally only have an
introductory interest-only
period before reverting to a
capital and interest
repayment mortgage.
SCI
This stands for société
civile immobilière, and
essentially denotes a French
company that is owned by
shareholders and used as a
vehicle for the purchase a
property in France. Most
French lenders will finance a
property purchase within an
SCI structure.
TERM
The maximum
mortgage term in France
is currently 30 years,
although 20 years is more
typical. If, as explained
earlier, the mortgage term
is affected by changes in
the interest rate, it will
generally only
increase/decrease by a
maximum of five years.
UNDERWRITERS
French lenders often
employ different teams of
underwriters and credit
committees, depending
on the size of the loan
applied for. A French
mortgage broker should
have direct contact with
the underwriters and
a full understanding
of their criteria.
VEFA
This is the French term
for an off-plan property.
There are numerous
developers in France who
offer investors the possibility
of buying a property before
it has been constructed.
WEALTH TAX
Wealth tax in France
is currently payable on the
value of all assets owned
above a threshold of
€780,000. Many savvy
owners of French property
choose to have a mortgage
secured against their French
property, so that in the eyes
of the French tax man the
‘net’ value of the property
falls below this threshold.
For example: if you own a
property worth €1 million
and you have a €500,000
mortgage secured against it,
the ‘net’ value of the
property in terms of wealth
tax is reduced to €500,000.
EX
If you are thinking
about purchasing a property
from an ex-husband, ex-wife
or ex-partner, it is possible
to arrange a mortgage to
finance the transaction.
This is a comparatively
complex process compared
with a straight purchase,
but you will be able to
finance up to 100% of the
share being bought. This
is so long as the total loanto-
value of the mortgage
does not exceed the
maximum LTV on that
particular product.
WHY USE A BROKER?
A good French mortgage
broker will be able to take a
huge amount of the potential
pain out of the French
mortgage application
process, in addition to being
able to give you access to
reduced rates and margins
that would not be available
when approaching lenders
directly. If the broker you
use speaks both English and
French, they will also be
able to work with you
throughout the process,
liaise within any of the third
parties involved in the
transaction and ensure you
have a choice of mortgages
from the widest possible
panel of lenders.
ZZZZ...
Having completed the
purchase of your dream
French property, you will
be able to sleep soundly,
safe in the knowledge
that you are the proud
owner of your own piece
of France!
Tel: +44 (0)207 484 4600 | Email: info@internationalprivatefinance.com | www.internationalprivatefinance.com
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