French Mortgages - Low Rate French Property Loans

Questions about French mortgages for French property.

Q. How much will I be able to borrow ?

70-100 % of total price.
Most lenders in France will let you borrow 80% of the value of your property, and some will let you borrow more. For some borrowers, however, we can achieve 100% LTV...

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But first a note about how French house prices are quoted:
French house prices normally include agents' fees. They are quoted like this: €99,000, FAI - meaning ' Frais d' Agence Inclus'.
So, the buyer in France usually (but not always) pays the agents fee.
The price of the property, excluding the agents' fee is called the ' net vendeur ' price.
In addition, the buyer has to pay the notaires fees.
These can be as much as 10% of the value of a low priced property but are normally around 7% of 'net vendeur' price.
The fees consist of stamp duty on the purchase of 5 - 6%, plus the notaires fee of around 1% to carry out the conveyance.
Finally if you are borrowing in France to buy the house, the notaires fees are increased by a further 1 - 1.5% to pay the 'frais de garantie' - mortgage registration tax, making the total notaires fees 8%.
In these pages we refer to the house price including agents fees and notaires fees as the total price.
Some banks (most notably Abbey National) will only finance the net vendeur price up to 85%. Most other banks however, will finance a portion of the agents fees and two of our partners will also finance the notaires fees.

Q. Will my income be sufficient ? / Are self-employed people accepted?

In order to assess whether you can afford the French mortgage you want, most French lenders will take 1/3 of the gross amount you receive each month from all sources, including salary or profit from self-employment plus investment income. They will then deduct the amount you are paying out each month for all your existing loans (UK mortgage, car loan, any other personal loans) plus alimony and rent if paid and of course the cost of your proposed French mortgage. Formal proof of all income sources is required. Self-employed people will have to provide a minimum two years accounts...

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Rental income is treated differently; the monthly cost of the mortgage you have taken to fund the property is deducted directly from the rent, or potential rent, that you earn from the property, before they look to your 1/3 of income for support. Thus, if you are borrowing on a property that is to be let, you can afford a larger loan.

If you borrow for a longer period your monthly payments will be less and you can therefore afford to borrow more. Loans can be anywhere between 5 and 20 years in duration, but most borrowers are reluctant to agree durations which go beyond the borrower's 70th birthday, although using independent French life assurance cover we can obtain cover up to age 80.

Q. What will the interest rate be?

1 - 2 % p.a. below comparable UK rates.
The interest rate will depend on whether you take a fixed rate or a variable rate mortgage. Fixed rates (i.e. fixed throughout the life of the loan) are the norm for French Mortgage borrowers, but variable rates are freely available and widely used by British borrowers in France because they are used to them...

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In a normal world variable rates should be lower than fixed rates, although as their name implies they can go up or down in line with rates in the market. With a fixed rate mortgage you will pay the same rate throughout the life of the loan although you can usually switch to a different rate basis if you wish, subject to the payment of a penalty, capped in France at 3 % of the amount switched.

At the time of writing (February 2005) fixed rates are at 4.0 - 5.0%, i.e. around 1% higher than floating rates, which (excluding one year discounts and the like) are at 3.0 to 4.5 % p.a. Often, the rate will be lower if you pay a larger deposit.

Q. Is it better to get finance in France or the UK to fund my purchase?

It depends. Read on.
A French mortgage costs more to set up than an English one. Bank fees and mortgage registration tax mean that upfront costs on a French mortgage will be 1.7 - 2.5% of the amount you borrow. However, French mortgages are on average 2% p.a. cheaper than English mortgages, so the higher upfront costs can soon be more than covered by lower annual costs...

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It is probably quicker to get a re-mortgage on your UK home than to go through the process of obtaining a French mortgage with a lender who doesn't know you. However for larger amounts we usually recommend that you take a Euro mortgage so as to avoid the potential exchange rate losses mentioned below.

In general, it is safer to fund a euro asset (your French property) with a euro liability (a euro mortgage), otherwise you face the technical risk that, when you come to sell it, if exchange rates have gone the wrong way, the proceeds may not be enough to repay the loan.

Q. Can I get finance for building works and alterations?

Yes.
Most lenders will cater for this and the amount they will finance varies between 70 and 80% at the time of acquisition. If you are applying for a loan just to finance renovation works and you have no mortgage on your property, you may be able to get 100% finance...

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You will need to get an estimate from a French-registered builder (a "devis") covering the works to be carried out, and this will form the basis of the amount that can be borrowed. The lender will collect your contribution from you up-front and will then pay 100% of the builder's invoices direct to him, provided they have been signed and accepted by you.

Q. Are buy-to-let mortgages available in France?

Yes.
Provided that you state that you intend to let the property permanently (i.e. on a standard 3 year rental agreement) you can obtain a buy-to-let mortgage, and the projected income from this will be taken into account by the lender in assessing your solvency.

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Holiday rentals will not be accepted for this purpose. However, one of our panel is prepared to take seasonal rentals into account as income, provided they are supported by a local agent's valuation. Please contact us for details.

Q. What other terms should I be aware of ?

See below.
Most lenders will charge an up-front fee of 0.5 - 1.0 % of the amount borrowed

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Life assurance cover will always be required, but it's usually provided at the same time as the mortgage at standard rates. If you are borrowing less than 60% we can arrange some loans without life assurance.

The mortgage process can take anywhere between six weeks and three months to complete, depending on the efficiency and response times of both the borrower and the lender. To save time it is worth starting to assemble the documents you require well in advance of sending off your application as some of them - accountants' letters, for example - take quite a long time to prepare.

Finance for Gites, Chambres d'Hote or for other commercial activities will require a different approach to that used for a residential or second home mortgage. Please contact us for an early discussion if you are considering this use for your property.

Repayments are always possible for fixed rate loans, and the maximum fee that can be charged is 3 %. There is normally no charge for an early redemption on a pure variable rate loan.

You will almost certainly need a French bank account to service the mortgage but you will need it anyway if you have a French property. The big French banks are pretty efficient and normally keen to open current accounts. However, since it inevitably takes a certain time to go through the necessary formalities we would suggest that you start working on this at an early stage during your project.

Q. What other terms should I be aware of?

A. See below
Life assurance cover will always be required, but it's usually provided at the same time as the mortgage at standard rates. If you are borrowing less than 60% we can arrange some loans without life assurance.

Read More

The mortgage process can take anywhere between six weeks and three months to complete, depending on the efficiency and response times of both the borrower and the lender. To save time it is worth starting to assemble the documents you require well in advance of sending off your application as some of them - accountants' letters, for example - take quite a long time to prepare.

Finance for Gites, Chambres d'Hote or for other commercial activities will require a different approach to that used for a residential or second home mortgage. Please contact us for an early discussion if you are considering this use for your property. Repayments are always possible for fixed rate loans, and the maximum fee that can be charged is 3 %. There is normally no charge for an early redemption on a pure variable rate loan.

You will almost certainly need a French bank account to service the mortgage but you will need it anyway if you have a French property. The big French banks are pretty efficient and normally keen to open current accounts. However, since it inevitably takes a certain time to go through the necessary formalities we would suggest that you start working on this at an early stage during your project.