Purchasing a property as a
first-time buyer is always
a daunting prospect, and
the situation is generally no
different for non-residents
purchasing in France for the
first time.
You may have read about
the recent case of the Russian
oligarch who committed to
the purchase of a luxury villa
in the south-east of France, for
the world record-breaking
price of €360m. The buyer
was subsequently reported to
have tried to pull out of the
transaction, due to concerns
about the worldwide economic
troubles and his own financial
issues. As he had signed a
sales agreement this U-turn
reportedly cost the billionaire
his 10% deposit, which the
mathematicians among you
will realise works out at a
cool €36m.
Just as is the case in the UK,
there is an established process
by which all buyers must abide
when purchasing a property in
France. The French process is
much more biased towards
protecting the purchaser than
is the case in the UK, although
once everything is in place and
you are nearing completion,
there will be penalties if you
decide to withdraw.
Here we will look at each
stage of the buying process
to outline the costs and
commitments involved,
and highlight a few things
you should be aware of in
order to keep your personal
risk to a minimum.
AGENCY FEES
When a property is sold in the
UK, the vendor is responsible
for paying the estate agent’s
charges, which may vary from
1% to 2.5% of the purchase
price, depending on the
agency involved.
In contrast, agency fees in
France are most commonly the
responsibility of the buyer and,
in the majority of cases, will be
included in the property’s
asking price.
Agency fees in France are
also a lot higher than in the
UK, generally the equivalent of
around 5% of the property
value. Although this may seem
expensive for British buyers,
this fee structure is fairly
consistent across all of the most
popular overseas holiday home
destinations, and in some
areas, especially for less
expensive properties, this
percentage can be even higher.
When you are budgeting
for your dream French
purchase, it is essential that
you establish whether the
agency fees are included in the
purchase price of the
properties being considered.
At this stage, it is also worth
noting that French mortgages
do not always cover the agency
fees. Often the LTVs (loan-tovalue
ratios) offered by lenders
are based on the property’s
net purchase price, excluding
any agency and notaire’s
fees applicable, so do make
sure that you establish this
at the start.
NOTAIRE’S FEES
This leads us conveniently onto
another supplementary charge
that you definitely need to bear
in mind: notaire’s fees.
Notaires are effectively
government employees who
are responsible for looking
after the legal aspects of
completing a property
purchase in France. A large
proportion of the fee they will
charge you is set by the French
government and is nonnegotiable.
These fees cover
the registration of the deed of
the sale, in addition to that of
the mortgage deed when
applicable. They also cover the
notaire’s administration fees
and the French equivalent of
stamp duty and other taxes.
The charge for registering
the deed of sale will vary
depending on the type of
property being purchased, for
example, whether it is a newbuild
or resale, while the
registration of a mortgage will
tend to equate to another 1%
to 1.5% of the loan amount. Do
ask your notaire for an idea of
how much this will add up to
as early as possible, to avoid a
nasty surprise towards the end
of the process!
With regards to the process
of arranging a mortgage,
notaire’s fees are financed
under specific circumstances.
French banks may be able
to finance these expenses if
you are purchasing a leaseback
property, for example, or if you
are refinancing an existing
loan. However, as a rule of
thumb you should plan to
cover all of the notaire’s
charges with your own
existing savings.
NEGOTIATING PRICES
The financial restrictions
imposed by all of these
additional fees may oblige
you to negotiate with the
vendor to secure a
competitive purchase price.
The flexibility you have to
negotiate may depend on
whether the vendor is French
or a non-resident; if they are
British, there is a good chance
that they may be selling up to
move back to the UK. Given
how strong the euro is against
sterling currently, they may
accept a quick sale at a lower
price in order to take
advantage of the exchange rate
when transferring the funds
across the Channel.
Once you have agreed the
purchase price, the notaire will
draw up the sales contract or
compromis de vente (or the
agency may use a standard
agreement). Once this is
signed, you will be obliged to
respect a seven-day cooling-off
period, after which between
two and three months will
pass before you sign the final
acte de vente. There is always
some flexibility with regards to
the date of completion,
provided that both parties are
happy to compromise.
THE DEPOSIT
On signing the compromis, a
non-refundable deposit of
around 10% of the purchase
price becomes payable and
will be lodged with the notaire
until after completion. This
may also be negotiable with
the vendor and is sometimes
agreed at 5%. After the sevenday
cooling-off period, the
deposit will be lost if the buyer
decides to pull out. On the
other hand, if the vendor were
to back out of the sale at any
time, they would have to pay
10% of the price as
compensation to the buyer.
MORTGAGE CLAUSE
If you are looking to complete
the purchase using a French
mortgage, it is important to
highlight that you can add an
additional clause to the
compromis that protects you
should a mortgage offer not
be forthcoming. This is called
the clause suspensive
d’obtention de prêt. It
essentially allows you to
withdraw from the transaction
without penalty if, having
submitted an application, you
are refused a mortgage from a
French lender.
This provides you with an
added level of security should
you be unable to secure
finance, but it is always a good
idea to start the mortgage
process as early as possible to
avoid having to make use of
this clause. There is generally a
deadline stipulated on the sales
agreement as to when this has
to be done.
On occasion, vendors may be
cautious about committing to a
transaction where a clause
suspensive is inserted, as it
suggests an element of
uncertainty on the side of the
purchaser. With this in mind, it
is worthwhile considering
using the services of a French
mortgage broker. Not only will
they be in a position to assess
the financial strength of your
mortgage application and
highlight any potential areas of
concern in advance, but they
will also be able to provide you
with an agreement in principle
from a lender.
Once you have the security
of an agreement in principle, it
will put you in a strong position
with potential vendors who will
have evidence that the funds
will be in place to complete the
purchase without delay.
The clause suspensive will
not, however, let you withdraw
from the transaction for any
reason other than the mortgage
not being approved – so it
should not be considered a ‘get
out of jail card’ that allows you
to back out of the deal at will.
As is always the case, it is
worth knowing how things
differ in France when
compared with what you may
be used to in your home
market. Consulting experts
who understand the ins and
outs of the process may well be
worthwhile, as while it may not
save you €36 million, the risk of
losing a 10% deposit on any
purchase is reason enough to
cover all bases.
Tel: +44 (0)207 484 4600 | Email: info@internationalprivatefinance.com | www.internationalprivatefinance.com
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