Unless you already have the savings or are planning to release equity from your home in the UK to purchase your property in France, there is a good chance that you will need to secure a mortgage to finance your purchase.
If you are serious about purchasing property in France and require finance, you should start arranging your French mortgage almost before you do anything else to enable you to proceed with confidence in the knowledge that you have secured the finance necessary to buy a new home.
Forward planning at the start will also give you a better idea of how much you can spend on your French property and can work out the likely future financial implications of your purchase.
Leaving the financial side of your French property purchase until the end will potentially leave you in a weaker position, especially if you have to raise finance in a rush, which may mean that you end up being unable to secure the best possible mortgage at the most attractive borrowing rate.
Miranda John, international manager of SPF Private Clients, remarks: “In an improving market sometimes vendors are not keen to accept an offer from someone looking for finance so it is sensible to have a full decision in place before you look at property.”
The risks associated with buying property in France have traditionally always been rather low, in stark contrast to the existing high-risk nature of buying property in some other European countries, thanks to the country’s relatively strong economy, supported by France’s prudent attitude to mortgage lending.
Mortgage borrowers in France are generally only permitted to borrow one-third of their total gross monthly income, with restriction on the maximum loan-to-value mortgages available, and although there are lenders willing to approve mortgage applications from those seeking to buy property in France, they will only do so if the figures stack up.
“For clients without stable proven income obtaining finance can be challenging,” says Miranda John. “Banks would ideally like a salaried employee who possesses an employment history with the same employer for at least three years.”
She adds: “For non-resident buyers it is quite restricted as many retail banks only lend to French residents. Although there are fewer lenders they are quite competitive and interest rates are some of the lowest in Europe.”
For a French mortgage, you will generally need a minimum deposit of at least 15% to 25% of the property’s purchase price, with rates that are fixed or variable.
“The max for a repayment loan is 85%, but there is only one lender who will go this high,” John comments. “Generally 80% is the highest available. For an interest-only mortgage, 70% to 75% is the maximum.”
Although French lenders do typically offer repayment and interest-only mortgages, most banks will currently only lend home loans on a repayment basis, which means that the debt must be paid off each month over the duration of the mortgage.
“Interest only is pretty difficult to obtain – it requires more onerous underwriting and the client needs strong assets to qualify,” Miranda John adds.
A fixed-rate mortgage generally offers greater security and guaranteed repayments, but come at a higher cost compared to variable-rate mortgages, which can go up or down according to movements in interest rates usually as a set percentage.
Variable rates are normally based on the Euribor three-month rate or the Euribor one-year rates, with a margin of 1-3% to the lender, depending on the nature of loan and the characteristics of the borrower. But it is worth noting that in France, most mortgages are granted on a fixed-interest basis.
Whether you opt for a variable-rate or fixed-rate mortgage you will normally have to pay an early repayment charge if you want to pay off your mortgage sooner or remortgage to a new deal. But redemption penalties are low in France – typically less than 1%.
Building insurance is compulsory for all people looking to secure a French mortgage and the notaire is required to have confirmation of this before you complete on a property. Some banks may suggest their own insurance product, but they cannot insist you take their cover.
Life insurance usually depends on the loan-to-value of the mortgage and the lender. For instance, if you are borrowing lower than 50% loan-to-value you may not need it – a lender will be likely to ask you to sign a declaration. Otherwise it is usually a requirement.
Your property in France will be at risk if you do not keep up repayments on a mortgage secured on it. Be sure you understand the repayments and can afford them before entering into any credit agreement.