Getting a mortgage in France
When it comes to buying property in France, whether you’re after a home-from home, holiday rental or are making a permanent move to sunnier climes one thing is on everyone’s mind…getting the best deal financially!
The prospect of getting a mortgage in France may seem daunting, after all it can be complicated enough in the UK! However, it could be much more cost-effective than using your savings if you get the right deal.
What are the benefits of getting a mortgage when buying property in France?
Borrowing in France is the cheapest it has been for over decade. Combined with long term-term fixed interest rates, inflation, property price rises (in most areas), this means buying a home in many parts of France today with a fixed-rate mortgage could turn out to be an excellent investment.
Loan to values (LVT) in France are currently up to 85 per cent of the property value – one of the highest in the European property market. The mortgage interest rates available in France – some as low as 1.75 per cent – also currently tend to be much more favourable than refinancing a property in the UK, which is currently often subject to high product fees and poor rates!
By obtaining a mortgage in France, you can also leverage your liquidity to invest elsewhere, spreading your risk.
French leaseback mortgages also offer further tax benefits for buy-to-let investors in France. While there are mortgage-related tax reliefs, which applies to those who are subject to French wealth tax.
In addition, French law also allows mortgage interest deductions against French inheritance tax and income interest is considered to be a direct expense against your rental income, which can be a sizable liability to those who inherit your property!
What is the lending criteria for getting a mortgage in France?
French mortgage lenders use what is called a debt burden ration (DBR) to assess your affordability. This is based on the percentage of your debt (i.e. any loans/finance, additional mortgages etc. that you may have) against your income.
French banks are generally a lot stricter with their affordability assessment than UK lenders, and each lender will typically assess affordability on a case-by-case basis, so long as the repayments on existing loans do not exceed their DBR criteria. Along with the DBR French mortgage lenders will assess your current employment status along with the documentation provided (see below for required documentation).
The rule of thumb when getting a mortgage in France is that your existing liabilities do not exceed between 30-40 per cent of your income.
If you are self-employed, mortgage lenders in France will want to see your last three audited yearly financials and they will want to see a healthy balance on your accounts!
Most mortgage lenders in France will also insist that you have life insurance in place, which covers the full loan amount, as well as building insurance.
You will also need to prove to the mortgage lender in France that the funds for the property purchase – a minimum of 15 per cent down payment and 15 per cent fees – are available.
The minimum loan requirement for France is €50,000.
What are the fees involved in getting a French mortgage?
French mortgage lenders usually charge between 0.5-1.5 per cent of the loan amount. Some lenders will cap this fee. One particular French mortgage lender currently caps this at €1,500.
If you are using a French mortgage broker, you will also need to budget for their fees which are typically, an upfront application fee of £250-300 and 0.5-1 per cent of the loan amount on completion. Some brokers will be flexible to negotiate on the fee and also cap the completion fee.
You will also need to factor in valuation fees, which can vary. As a rough guide they are approximately €370, but some French mortgage lenders will waive this.
As life insurance is a mandatory requirement for a French mortgage you should also budget for this additional monthly cost. The cost will depend on the loan amount as you will require life insurance to cover the full amount. This can generally be done with any UK provider.
What is the process when applying for a mortgage in France?
Typically, a broker or lender should be able to give you the go ahead to apply for a French mortgage once all the pre-qualification information has been submitted within one or two days, with a verbal approval.
After submitting your documentation, French mortgage lenders usually require a full working week to assess this and may request further documentation. If the underwriting committee is happy to proceed, they will instruct a valuation on the French property. Make sure that you have the relevant contact information at hand for access to the French property. This process will take at least one working week.
After the mortgage lender in France receives the report, they will require a further week to issue a final offer letter. Prior to the final offer being issued, the lender may want to see that you have your insurance in place. Depending on the lender, life and home insurance are a mandatory requirement, some French lenders will offer a discounted rate if the insurance is obtained through them.
Realistically, you should allow a minimum of six to eight weeks for the mortgage process.
In France, there is no official Agreement in Principle (AIP) issued as such, unlike the UK. The offer is usually communicated via email and can be extended subject to the client providing updated documents and subject to the client’s financial circumstances not changing.
Generally speaking, the bank will only be able to progress to the next step when the client has found a property in France. Until then the client may need to provide updated documents, which can be frustrating but is necessary. The lender’s criteria is also subject to change on average every three months, which can also effect the initial offer.
There is a 10-day cooling off period after the final offer has been issued by the lender.
What documents will you need to provide when applying for a mortgage in France?
There are a number of documents you will need to provide to obtain a mortgage in France. These may vary slightly from one French mortgage lender to the next, but as a general guide the following documents will be required:
- Copies of your passport (of all borrowers)
- Proof of income(last three month’s payslips and a letter from your employer)
- If self-employed, your last three year’s audited financials and last three year’s tax returns
- Your last three months bank statements for all accounts held
- Proof of available funds for your contribution towards the property purchase, including funds for fees associated with the mortgage
- Statements of any assets
- Statements for any outstanding loans including three month’s credit card statements
- Rental agreements for any property owned
- Preliminary sales agreement (Compromis de Vente) for property to be purchased
Mortgage lenders in France will also want to know about all debit instructions and standing orders, so make sure to provide the relevant information, highlighting these transactions on your bank statements can make the process much easier.
There is a degree of variation between French mortgage lenders’ risk assessment and some may request additional document. It’s important that you provide the most up-to-date documents (no older than a month) all at once to avoid delaying the process and having to keep resubmitting documents, as a French mortgage provider will only process your application to their risk department once they are satisfied that all the necessary and accurate documentation has been received.
Be aware that this can be a very time-consuming and painstaking process, and situations may change along the way which, while frustrating, is necessary.
What types of mortgages are available in France?
Fixed and variable mortgage repayments are both available in France, as well as interest only mortgages. Interest only mortgages in France will have stricter conditions depending on the lender and generally the lender will reduce the loan to value available to you.
There are also re-mortgage options are available. If you have a UK property that is either mortgage free or with equity, it is always worth comparing your options with UK banks. This would also mean that you are not open to currency fluctuations and French mortgage fees.
A foreign exchange broker can however eliminate any risks involved with regards to fluctuating exchange rates by fixing your monthly repayments for up to 12 months.
Leaseback mortgages or “Credit Bail”, are generally available on developments in a complex, which is managed by a professional management company set up to administer the whole complex at the time it is built. These properties are usually let out over a nine-year period with a limit of how much time the owner may use the property for his own use, which is typically no more than four weeks a year. The rental income is usually guaranteed for the nine-year period at the out-set.
Leaseback schemes are beneficial as there is a 20 per cent tax rebate from the government. A leaseback generally relieves you from the stress of dealing with tenants as there is a management company in place to manage the property directly. However, as there is no rental guarantee after a certain period, the management company can increase their fees and terms after the initial agreement.
Buy to let mortgages are also available if you simply wish to let out your French property from time-to-time to suit your own requirements.
The benefits of a buy to let mortgage, in comparison to leaseback mortgages, is that you manage the property and the use of the property, meaning that you will have more flexibility to use the property when you want in the high seasons.
If you need assistance obtaining a mortgage in France call our team today on 01244 478911 or email us on email@example.com to find out more.
Article published: August 23, 2018