Be­fore you fall head over heels with a prop­erty across the Chan­nel, Matthew Cameron ad­vises you spare some time for for­ward plan­ning to en­sure things run smoothly

French Property News - - Contents -

Fees, fi­nance and for­ward plan­ning; how to get pre­pared for your move

One of the themes we of­ten raise with clients when they are at an early stage in their prop­erty pur­chase in France is ini­tial prepa­ra­tion and in­ves­ti­ga­tion of the back­ground pro­ce­dures. It may seem a lit­tle ob­vi­ous to sug­gest it is im­por­tant to pre­pare thor­oughly for some­thing as huge as buy­ing a home in a dif­fer­ent ju­ris­dic­tion, yet our ex­pe­ri­ences show that some of the dif­fer­ences are of­ten not worked through in ad­vance.

Take, for ex­am­ple, mort­gages. There are strict lend­ing cri­te­ria in France, just as is the case in the UK. How­ever, a per­son’s abil­ity to af­ford a mortgage is cal­cu­lated dif­fer­ently; ‘af­ford­abil­ity’ is es­tab­lished pre­dom­i­nantly by ref­er­ence to over­all debt, with less con­sid­er­a­tion given to the ‘loan to value’ as­sess­ment of the prop­erty to be mort­gaged. The re­sult is that while a buyer may not have a prob­lem were the fund­ing to be sought in the UK, the same base cri­te­ria could re­sult in a re­jec­tion in France.

In­evitably, there are ways to avoid such po­ten­tial pit­falls. You could con­sider se­cur­ing a Bri­tish mortgage against a home in the UK, thus be­com­ing a cash pur­chaser in France, for ex­am­ple. That may not al­ways be pos­si­ble though. In any event, the point here is that it is im­por­tant to en­sure – how­ever any fund­ing is to be sourced – that you are fully aware of how much can be bor­rowed.

Whether us­ing a mortgage bro­ker or deal­ing di­rectly with banks, it should be pos­si­ble to or­gan­ise a non-bind­ing ‘preap­proval’ in ad­vance even of find­ing the right prop­erty. That, at least, would re­duce the risk of prob­lems aris­ing later.

Tim­ing is­sues Of course, not ev­ery buyer needs to raise a mortgage to buy their new home in France. An­other com­mon sce­nario is to sell your home in the UK in or­der to fund a pur­chase in France, as part of a per­ma­nent move. How­ever, it is ex­tremely dif­fi­cult to suc­cess­fully syn­chro­nise a UK sale with a French pur­chase, such that the whole process is seam­less.

Prop­erty trans­fer pro­ce­dures are dif­fer­ent ei­ther side of the Chan­nel, and the points at which each con­tract be­comes bind­ing are go­ing to be far apart. The re­sult is that you may be un­able to com­plete the pur­chase in France as in­tended, or that you could be ‘home­less’ for a while – per­haps for sev­eral weeks or longer.

We oc­ca­sion­ally take in­struc­tions from clients be­ing called upon to com­plete a pur­chase in France when they have not yet com­pleted their sale in the UK. There are dif­fer­ent ways of ad­dress­ing this prob­lem, and it may not nec­es­sar­ily turn out to be a con­cern in any event. How­ever, it does un­der­line the im­por­tance of a thor­ough un­der­stand­ing of the en­tire pro­ce­dure, as well as plan­ning for such sit­u­a­tions.

Don’t for­get fees An­other point to bear in mind is the level of no­taire’s fees. When the stamp duty el­e­ment (by far the largest part of no­taire’s costs) is taken into ac­count, these can eas­ily rise to 7%-8% on a stan­dard sale. And where the buyer is

Even for some­thing as huge as buy­ing a home in a dif­fer­ent ju­ris­dic­tion, our ex­pe­ri­ences show that buy­ers don’t al­ways work through the dif­fer­ences in ad­vance

tak­ing a mortgage to be se­cured against the prop­erty in France, a fur­ther 1% should be bud­geted too.

Com­mis­sion payable to agents in France is of­ten higher in France than in the UK – in prac­tice, their busi­ness model is some­what dif­fer­ent. Com­mis­sion rates of around 4%-8% are stan­dard. How­ever, it is more im­por­tant that the buyer un­der­stands whether that com­mis­sion is payable in ad­di­tion to the marked pur­chase price or whether it is in­cluded in the sale price and thus payable by the seller. Ask­ing prices can be ad­ver­tised in both forms. That is en­tirely usual, al­though it is im­por­tant to know which.

Suc­cess­ful suc­ces­sion Much is writ­ten about the com­plex­i­ties of French in­her­i­tance law and tax rules; in par­tic­u­lar, the French rules of forced heir­ship that have con­cerned Brits for many years.

While the EU Suc­ces­sion Reg­u­la­tion (which came into force in 2015) has changed much, it is not nec­es­sar­ily the case that sim­ply writ­ing a UK will is suf­fi­cient to cover all is­sues about post-death es­tate plan­ning.

A typ­i­cal UK will, with all its com­plex­i­ties, can cause dif­fi­cul­ties in the ad­min­is­tra­tion of a de­ceased per­son’s es­tate in France, not least be­cause of the likely im­po­si­tion of trusts un­der a UK will: trusts are treated with sus­pi­cion in France.

In prac­tice, there are a num­ber of ways of plan­ning the de­vo­lu­tion of your es­tate, per­haps by the ap­pli­ca­tion of English (or other UK) in­her­i­tance law rules, maybe by French. Ev­ery­one’s cir­cum­stances will be slightly dif­fer­ent, and so spe­cific ad­vice is re­quired.

This is even more the case when we bear in mind that French and UK in­her­i­tance tax could both have an im­pact – and the two in­her­i­tance tax sys­tems are also cal­cu­lated dif­fer­ently.

This shows that there are many points to con­sider in ad­vance of a pur­chase in France. Per­haps one of the most im­por­tant points of prepa­ra­tion is to con­sider whether a suit­ably ex­pe­ri­enced firm of so­lic­i­tors should as­sist with the trans­ac­tion.

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