Mort­gages – France

France has sim­ple mort­gage loans, lower in­ter­est rates and eas­ier terms of re­pay­ment:

Banking Frontiers - - Contents - mo­[email protected]­ingfron­tiers.com

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.

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