Mortgages – France ..................................
France has simple mortgage loans, lower interest rates and easier terms of repayment:
In France, home loans, or hypothèque, are offered by all major banks for both residents and non-residents. Several foreign banks too are in the business. Apart from these entities, the French post office also offers mortgages with a rider that an applicant must be member of a contributory plan for a minimum of 18 months. Loan are offered in foreign currencies except in euros.
French bank Credit Agricole is the largest player in the home finance market with a 25% share of the market. BNP Paribas group bank UCB specializes in arranging mortgages for foreign buyers in collaboration with a building society named the Abbey Building Society.
France has witnessed a sort of repayment issues in the recent past and banks are making the criteria for lending to home buyers stricter these days. Some foreign banks have stricter rules than French banks in terms of employment, earning, the type of property to be bought, etc. It can be particularly difficult for a single woman to obtain a mortgage in France.
REPAYMENT MODES
In France, the repayment of home loans is through what is described as the ‘capital and interest’ method, which essentially is repayment through monthly instalments of capital and interest. During the loan term, the balance of capital owed reduces to nil. Some banks do offer ‘interest-only’ mortgages. The maximum mortgage term is 30 years, but in most cases, it will be 15-25 years. Most of the banks insist on a life assurance policy for borrower, which is assigned to the banks.
France has comparatively lower home loan interest rates. Borrowers who offer 30% or more of the purchase price, get lower interest rates as well. There are two basic methods of charging interest - fixed and variable rates, the latter including a wide range of schemes. In the fixed interest rate mortgage, the rate of interest charged remains the same throughout the term of the loan. Therefore, if general interest rates rise, the borrower is not affected, and the amount of capital paid back in each monthly payment is not altered.
4 SCHEMES FOR BORROWERS
In variable interest rate mortgage, there are 4 general types - money market-linked interest rates, where the charge rate of interest is reviewed on each anniversary date of the loan, or sometimes every quarter, cap and collar interest rates, where the rate is reviewed on each anniversary, and again the new rate charged will be a set margin above the base rate for the money market used as a reference by the bank, capped interest rate, where the interest rate is reviewed annually, but from the outset the charge rate may not exceed a predetermined limit applicable throughout the loan term, and capped increases in monthly payments, where the interest rate is reviewed annually with the new rate being charged at a set margin above the reference rate.
CONVERSIONS
Borrowers can usually convert a variable rate mortgage to a fixed rate mortgage at any time. There is normally a redemption penalty, like 3% of the outstanding capital, for early repayment of a fixed rate mortgage, although that is not usual for variable rate mortgages.
France’s laws do not allow banks to offer mortgages or other loans where repayments are more than 30% of one’s net income. Joint incomes and liabilities are included when assessing a couple’s borrowing limit (usually a French bank will lend to up to three joint borrowers). Also mortgages are usually limited to 70% to 80% of a property’s value (although some lenders limit loans to just 50%). If a borrower fails to maintain mortgage repayments, the assigned property can be repossessed and sold at auction. However, French banks are very considerate as they agree ti lower repayments when borrowers get into financial difficulties.
REMORTGAGES
If a person has spare equity in an existing property, he can remortgage (or take out a second mortgage) on that property instead of taking out a new mortgage for a second home. Depending on the equity in the existing property and the cost of the property, this may enable one to pay cash for a second home.
It is also possible in France to arrange post purchase finance during the first 12 months after completion of a property purchase, so the options available may be wider.
LIFETIME MORTGAGE
France has schemes in which one can release some of the equity value in the home in return for a regular income or capital sum, with the mortgage repaid following one’s death through sale of the property. These are called prêt viager hypothécaire. Alternatively, the person can repay through sale of the property, if he decides to relocate.
The top organizations offering home loans in France are Credit Lyonnais, BNP Paribas, Societe Generale and CIC among national banks, Credit Agricole, Credit Mutual, Caisse d’Epargne and Banque Populaire among mutual French banks, La Poste, which is the French Post Office, Entennial, l’UCB, and Crédit Foncier, which are not deposit banks, but often offer more interesting and competitive mortgage solutions and Abbey National, Barclays, HSBC, Halifax and Royal Bank of Scotland, which are the international banks.