Lending a hand
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