Lend­ing a hand

Living France - - Contents -

Our ex­pert tack­les some com­mon mis­con­cep­tions about French mort­gages

At first glance, French mort­gages are sim­i­lar to those in the UK but there are many dif­fer­ences that can trip up for­eign buy­ers.

Fiona Watts de­bunks some of the most com­mon mis­con­cep­tions and shares her top tips for a suc­cess­ful mort­gage ap­pli­ca­tion

They say that the devil is in the de­tail, and while on the sur­face a French mort­gage may look sim­i­lar to a UK one, there are many dif­fer­ences that can lead to mis­takes. You can avoid th­ese, how­ever, if you plan your fi­nances in ad­vance. So what do you need to know if you are con­sid­er­ing whether or not to ap­ply for a French mort­gage? Read on for some of the most com­mon as­sump­tions I come across and what the re­al­ity is.

1) “I’ve got a good re­la­tion­ship with my UK bank, so I’m sure they’ll lend me the money”

Un­less you are ap­proach­ing a pri­vate bank (and even then you may find the ap­petite is min­i­mal), all the UK re­tail banks have stopped lend­ing against over­seas prop­erty. They could only help with re­leas­ing eq­uity from an ex­ist­ing UK prop­erty.

French mort­gages are ar­ranged in eu­ros, with banks based in France. There are a num­ber of lenders which will lend to non-res­i­dents, and a good FCA-reg­is­tered bro­ker should be able to ad­vise which ones have the most ap­pro­pri­ate prod­ucts to suit your re­quire­ments.

2) “I don’t want to be locked into a fixed-rate mort­gage be­cause of the early re­pay­ment penal­ties”

This is one of the key dif­fer­ences be­tween France and the UK. In France, not only can you fix your rate (cur­rently just above 2%) for 15 to 25 years, but the early re­pay­ment charges (ERPs) are ex­tremely low when com­pared to the UK equiv­a­lent.

For ex­am­ple, if you take out a €250,000 mort­gage for 15 years at a fixed rate of 2.25% and then want to pay off €100,000, the ERP will be the equiv­a­lent of six months’ in­ter­est on the amount you re­deem (in this case €1,125).

In the UK, you would be look­ing at an av­er­age of 7% of the amount you re­deem (in this ex­am­ple you would be look­ing at an ERP of around £7,000).

3) “I don’t need a mort­gage yet, so I’ll just re­lease some eq­uity later on if I need it”

This is where the French lend­ing sys­tem dif­fers greatly from the UK. You can only get a pur­chase mort­gage within the first year of buy­ing the prop­erty. Af­ter that, there is only a very re­stricted set of cir­cum­stances where lenders will con­sider grant­ing a mort­gage to re­lease eq­uity.

Know­ing this, you may pre­fer to keep your ster­ling sav­ings liq­uid, in case of a rainy day, and con­sider tak­ing out a mort­gage at the point of pur­chase (es­pe­cially at the mo­ment as the rates are so low).

4) “I’ve not got enough sav­ings, but my fam­ily are giv­ing me the de­posit”

French banks con­sider non-res­i­dents to be their most risky cus­tomers and have a num­ber of rules and cri­te­ria that you have to meet in or­der to have a suc­cess­ful ap­pli­ca­tion. One of th­ese is showing the banks that you have a ‘ca­pac­ity to save’. They don’t like your de­posit to come from bor­rowed money, and typ­i­cally also need to see a year’s worth of mort­gage pay­ments in sav­ings as a buf­fer. Hav­ing said that, they may al­low a small amount of the de­posit and no­taire’s fees to be paid from bor­rowed money.

5) “I’m go­ing to re­lease some eq­uity from my UK house to pay the de­posit”

In France, the banks view home­own­er­ship in a very dif­fer­ent light from us in the UK, see­ing prop­erty as some­where to live rather than as a pot of money to dip in and out of. They don’t want to fund a pur­chase which is fi­nanced 100% by debt. You will need to show ev­i­dence of other sav­ings to prove that you have the means to keep up your fu­ture pay­ments.

6) “I’m based in Dubai so I as­sume they won’t lend to a non-EU res­i­dent”

With Brexit on the hori­zon, the French banks have been very quick to re­as­sure non-res­i­dents that they will con­sider it ‘busi­ness as usual’ when the UK leaves the Euro­pean Union. The loan-to-value may be slightly re­duced for non-EU res­i­dents, but the banks will lend to many non-EU na­tion­als and non-EU res­i­dents – in­clud­ing Amer­i­cans and Aus­tralians as well as those from coun­tries such as the UAE, Sin­ga­pore, Hong Kong and Scan­di­navia.

7) “My part­ner has a large credit-card debt so we just want the mort­gage in my name”

The French banks are fine with cou­ples buy­ing in a sole name, but they will still want to see your part­ner’s fi­nan­cial records. Their view is based on the be­lief that, if it came down to it, your pri­or­ity would be to sup­port your part­ner rather than pay the French mort­gage.

That doesn’t mean that you can’t get a mort­gage if your part­ner has a bad credit rat­ing, but we would strongly ad­vise you seek some help from a bro­ker who can talk you through how best to present your case.

8) “The rental in­come from the French prop­erty will mean I can bor­row more”

Good think­ing, but say­ing this will likely jeop­ar­dise your chance of get­ting any mort­gage! French banks will only lend on res­i­den­tial prop­erty, so if you tell them you

are go­ing to set up a chalet or gîte busi­ness, they will not loan against that prop­erty (and would likely be sus­pi­cious of any fu­ture en­quiry you made). There­fore, you can’t de­clare the po­ten­tial in­come you would make as a way of sup­ple­ment­ing your monthly in­come.

But that doesn’t mean you can’t rent out your prop­erty. Once you own it, un­like in the UK, you can rent it out as a long-term or short-term let with­out hav­ing to in­form the bank or chang­ing the con­di­tions of the mort­gage.

Many clients find this a great way to pay their monthly mort­gage re­pay­ments. The key is that you can’t use this po­ten­tial in­come to ob­tain the mort­gage in the first place.

9) “My ex­ist­ing buy-to-let port­fo­lio gen­er­ates enough in­come to cover my French mort­gage”

While the French lenders are re­lax­ing some of their cri­te­ria around how they view buyto-let port­fo­lios, you must re­mem­ber that they still will not al­low you to rely 100% on the in­come they gen­er­ate. They are very ner­vous of clients who have high ex­ist­ing debt lev­els, ir­re­spec­tive of the in­come that they gen­er­ate, so it’s worth talk­ing to a bro­ker, rather than to a bank di­rectly. Each bank has very dif­fer­ent ways of cal­cu­lat­ing the value and in­come from a buy-to-let port­fo­lio and an ex­pe­ri­enced bro­ker will be able to ad­vise which bank and prod­uct you could qual­ify for.

10) “I can buy the prop­erty with cash, but I just need a loan to fi­nance the ren­o­va­tion work”

While Brits love a doer-up­per, the French aren’t so keen, and the French banks’ ap­petite to lend on such prop­er­ties re­flects this view.

You can ob­tain a mort­gage to fund ren­o­va­tions, but the con­di­tions they de­mand can be quite strict – you will need ac­cu­rate quotes for all the work you in­tend to carry out from French-reg­is­tered builders for a start, as well as en­sur­ing all the rel­e­vant plans and per­mis­sions have been ob­tained by the au­thor­i­ties.

11) “I’ve had my French mort­gage for a cou­ple of years now; it’s about time I re-mort­gaged to a bet­ter deal”

Re­fi­nanc­ing in France is no­to­ri­ously costly (you have to pay for the no­taire again, so the re­fi­nance fees will typ­i­cally run into the tens of thou­sands). For some peo­ple, with mort­gages with rates above 3% and more than 10 years to run, the sav­ings do make it worth­while, but for the ma­jor­ity, the time, ef­fort and cost in­volved don’t make it a sen­si­ble move.

12) “I’m buy­ing a prop­erty off-plan in France so I won’t need all of my per­sonal con­tri­bu­tion up front”

This is an area that dif­fers quite dra­mat­i­cally from the UK. Typ­i­cally, in Bri­tain, you will pay a sum of around £1,000 to re­serve your plot, ex­change within 30 days and then you don’t need to pay your per­sonal con­tri­bu­tion (or de­posit as it’s more com­monly known) un­til the build­ing is fin­ished. It would be at this point that the mort­gage com­pletes and the builder re­ceives the full amount.

In France, it works a lit­tle dif­fer­ently. The French bank will re­quire you to pay all of your per­sonal con­tri­bu­tion up front. The rest of the pur­chase price is then paid in phased pay­ments in line with how the build pro­gresses, and the mort­gage only kicks in once your de­posit has been paid. Fiona Watts is joint man­ag­ing direc­tor of In­ter­na­tional Pri­vate Fi­nance in­ter­na­tion­al­pri­vate­fi­nance.com

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