THE HOME RUN
Despite the current financial uncertainty, there are many reasons why now is a good time to buy a home in France with a French mortgage, says Simon Smallwood
Cover story Our expert explains the benefits of buying a property with a French mortgage
It is fair to say that 2016 was a momentous year. A number of unexpected events had the effect of plunging many areas of our lives into uncertainty. Those of you looking to purchase a property in France would have felt this particularly keenly, as incidents such as the EU referendum result and the terrorist attacks in Nice put a different complexion on the prospect of owning a property on the other side of the Channel.
However, for a good many people, these events also highlighted the importance of ensuring those long-held dreams of owning a second home in France are not derailed by external forces.
With 2017 now underway, it is time to look to the future. The press and politicians can continue to debate Brexit until the cows come home, but it is important not to let this distract you from your plans of owning a property in France. The current conjecture over Britain’s exit from the European Union is no reason to abandon what, for many of you, will be a lifelong dream.
At times such as this, it is important to keep a sense of perspective. It may seem obvious, but the beautiful country of France has not become any less attractive as a result of the EU referendum. It still offers glorious landscapes, a wonderful culinary tradition and excellent quality of life. There is no reason why you should give up on the aspiration of owning your own little piece of this fantastic country. What’s more, the presence of British buyers is of the utmost importance to the property market in France. This is not an area of business that the French will want to turn their back on anytime soon.
The French mortgage market is a good example of this. French banks lend millions of euros every year to British buyers, and they are determined not to allow the Brexit process to close this market off. Indeed, some of the international lending divisions of French banks went as far as to lower their rates in the last year, in order to stimulate business from British buyers that they fear may be ebbing away in the aftermath of the referendum.
LOW MORTGAGE RATES
As always in times of uncertainty, buyers can also use a French mortgage to provide an extra level of security when making their property purchase. Those recent cuts have meant that French mortgage rates are at or are near historically low levels. It is therefore a great time to secure mortgage financing in France.
As a British buyer taking out a mortgage in France, you are reducing your initial sterling outlay on the purchase. Given that the pound has weakened against the euro since the referendum result, this protects you from needing to transfer too much of your savings into euros at the current, unfavourable rates. For an extra layer of protection, you could also consider a fixed-rate French mortgage. The rates for these mortgage products have dropped to extremely appealing levels. For example, at the time of writing it is possible to secure a fixed rate of 1.85% over 20 years. Whatever comes to pass over the coming years, you are thereby guaranteeing that you will continue to pay off your mortgage at an historically competitive rate of interest.
One benefit of French mortgage rates being so low is the impact this has on redemption penalties for fixed-rate French mortgages. Redemption penalties are typically six months’
interest. Therefore with French mortgage rates being low, redemption penalties are also at historic lows.
Should you prefer products with no redemption penalties, capped-rate products have the benefit of providing protection should rates rise in the future while not having penalties for early repayment.
Many buyers currently therefore prefer to purchase with a French mortgage as they wait for the pound to strengthen against the euro. As and when the pound recovers, a French mortgage with no early redemption penalties will subsequently allow the British borrower to purchase euros at a more favourable rate and use them to pay off a chunk of the outstanding capital, reducing the sterling cost of completing their French purchase. The attractively low interest rates currently offered by French banks make this a particularly shrewd option.
A French mortgage approval can also be used to send out the right signals to vendors when purchasing in France. We cannot completely disregard the fact that these are uncertain times, and it is perfectly understandable that French property vendors can be more cautious about selling to British buyers.
One way to calm any fears that they may have is to secure a French mortgage agreement in principle before making an offer on their property. A financial preapproval from a recognised French bank will serve to reassure the vendor that you are serious about the purchase. It will also demonstrate that you are in a sound enough financial position to go through with the acquisition and provide you with peace of mind about how much you can borrow.
Securing an agreement in principle can also cut down on the overall time frames involved in completing the French property purchase. In the current climate any slight delay or hold-up in the sale can cause vendors to become twitchy. It should be underlined at this stage that a property purchase in France takes on average around three months to complete. However, there is nothing worse for a vendor than this time frame being extended by delays as the buyer struggles to secure the appropriate financing from a bank.
As such, obtaining a financial pre-approval is a great way to reassure the vendor that you are in a position to complete the purchase in an efficient, timely manner.
This is part of the process that can be completed before you even start your French property search. Not only will it make you a more reliable prospect to potential vendors, but it will save valuable time once you find that dream property.
Hopefully the ideas we have shared with you here will help to put you in a strong position if you are looking to buy your dream French home this year.
Simon Smallwood is joint managing director of International Private Finance internationalprivatefinance.com