If you are considering purchasing a property in France and need to obtain a loan, it is worth comparing the pros and cons of securing a loan from French or English providers.
It is worth noting that some Estate Agents will steer towards Banks or brokers that charge quite a high arrangement fee some as much as 1.5 %.
By working through specialist French mortgage brokers you can more often reduce the arrangement fee, get better terms and the broker’s commission is paid directly by the Bank.
Furthermore you are likely to obtain more impartiality and a greater degree of assistance with the paperwork from a good broker than many Banks where you deal with the Bank direct.
We have links with two good French mortgage brokers the majority of whose fees are met by the French Bank, and who are able to pay us a commission which has the advantage that it can upon request be set against your fees. A further advantage is by working with brokers whom we know we are better able to assist you through the process from start to finish.
Obtaining a French Mortgage
Buying a home in France is a very different process from the way we are familiar with in the UK.
You may require a mortgage to help fund the purchase of your property in France be it your dream home, holiday home or investment property.
There are at least as many mortgage options in France as in the UK and they are all just as complicated, even more so if your command of French is still developing, and so professional advice is invaluable.
You should consider and account for all the costs involved in purchasing a property in France, this will include Notary fees, estate agents fees and mortgage costs, and make provision for these. Ideally you should think about these before you find your ideal property, although as often as not this is not the case.
Once you have found your property you will be required to sign the preliminary sales agreement (the compromise or promess de vente). This is a binding contract and once signed you are committed to the purchase of that property after a “cooling off” period of 7 days. As a result the purchase and sale of property in France is a much smoother process than in the UK and it is very unlikely the seller will find their buyer has pulled out of the purchase months after the initial offer.
It is at this point (the signing of the initial agreement) that you will pay your initial deposit (usually 10% of the purchase price) which is non-refundable. If you require a mortgage you should ensure there is a clause (conditions suspensives) in the contract that will free you from the purchase if your loan application is declined.
You must then apply for your mortgage.
Getting a great french mortgage
Using an independent broker to source and arrange your mortgage is one of the most efficient and effective ways of doing so. Not only can they help guide you through the process they also have access to special rates that sometimes are not available by going to a lender directly. Additionally the headache of contacting many providers is taken out of your hands so you can be sure you are obtaining the best and most suitable mortgage for your needs. For instance, will you want to repay the mortgage early without penalty, would you prefer the rate to be fixed for a certain period, would you rather interest only for a period of time? All of these factors will be considered by your mortgage broker who will be familiar with all the mortgage conditions and lending policy in France
Most lenders comply to a general lending policy, there are exceptions, but in general the conditions are standard across the board.
Unlike in the UK where one can (or rather could) obtain 100% mortgage and even above, this is not the case in France. Most lenders require a deposit of at least 15% of the property purchase price.
Affordability also forms the basis of how much you can borrow. Unlike the UK where affordability plays a part however most loans are worked out on an income multiple -affordability is the key. Your mortgage repayments, plus any other outgoings such as loan repayments, existing mortgages, maintenance and life insurance, should not exceed 35% of your gross income. French lenders are not known for their flexibility on this matter. However, it ensures that you are not borrowing beyond your means and the repayments will be affordable.
You will enjoy lower interest rates on your borrowings in France than in the UK, which helps keep your repayments affordable. Some lenders have a cap on how much they are able to increase your repayments by and may extend the term of your loan if your repayments have not been sufficient to pay the outstanding loan during the original term.
Life insurance is compulsory and in almost all cases must be taken out through the lender. This will ensure your mortgage is repaid in the event of death and provides reassurance not only for the lender but also for yourself.
So, you have discussed your requirements with your broker and found a mortgage you wish to apply for.
On receipt of all the appropriate documents you will be issued with your mortgage offer (this is usually between 2 – 4 weeks from the receipt of your application). You must read this carefully to ensure you are happy and agree with the conditions. Following the receipt of your mortgage offer there is a 10 day statutory cooling off period. This allows you to consider the offer. You must not sign, date or return the mortgage offer during the cooling off period as the offer will become void.
Once your mortgage offer is signed and returned to the lender the funds will be released to your notaire and congratulations, the property is yours!
Finally, if you are a French resident using a mortgage for the purchase of your main residence you are also eligible for a tax credit in respect of your mortgage interest during the first 5 years of your mortgage. The tax is reclaimed on your annual tax return, so if you are not submitting a tax return you will not enjoy the tax relief.
Taking a French Mortgage
Taking up a French mortgage secured upon your French property is likely to suit you in the following circumstances :
- Your UK property is mortgage free or almost mortgage free and you do not wish to put your UK property at risk.
- You are renting out your French property and receiving an income in euros.
- This means you will be paying most of your French mortgage in euros as well and you will thus be less exposed if the euro rises against the Pound Sterling.
- You believe the euro will not rise significantly and you are attracted by the very low interest rates being offered by French lenders at present.
- You like the idea of being able to fix your interest rate for up to 20 years
The downside of French mortgages is that the lending criteria and the documentation can both be quite off-putting and the arrangements fees can be quite high.