French Mortgage Overview
French mortgage or UK mortgage?
When buying a property in France, many people opt for a euro mortgage to take advantage of the historically cheaper interest rates and to benefit from the euro/sterling exchange rate.
At the time of writing this, the exchange rates are almost at parity, ie 1 euro = 1 pound. However, there are ways that you can actually benefit from this - see below for more details. Currency rates can be fixed as much as up to 2 years in advance, allowing you to budget more effectively. A French mortgage broker or a currency exchange company can set this up for you.
Reasons for a French mortgage
Quite simply, you have decided that this is a good time to buy in France and you don't have the cash so you need a mortgage to buy. But there are also some less obvious reasons for choosing a French mortgage.
Are you waiting for your house to sell? It may well be cheaper for you to buy now with a mortgage than to wait for your property to sell. It is a buyer's market at the moment with bargains to be had and vendors willing to negotiate their prices. As France has a more stable property market than the UK, there is a good chance that prices in France will go up before the market recovers in the UK.
Have you considered that a mortgage may actually work out cheaper than paying cash? With exchange rates at an all time low, it could make financial sense to pay a small deposit now and to pay off the mortgage when the exchange rate improves, assuming that it does improve. This is equally applicable whether you have the cash now or when you sell your house. Mortgages are available in France that can be redeemed after just one year with no redemption penalties. Put the money in a savings account and the interest will cover at least part of the mortgage payment.
If you already have a house in France, you could consider an equity release mortgage to pay off more expensive UK debts. These kind of mortgages are fairly new in France and can be used to reduce your monthly outgoings.
When to apply?
The simple answer to that is - the sooner the better. And there are good reasons to get your finance sorted out, even before you have found your property.
- Give yourself time to research the French mortgage and UK mortgage markets. That way you will be able to find the best deals. You may find that for your particular financial circumstances, a sterling mortgage would be a better option for you.
- The application process can take anything from 6 weeks to 3 months, although the initial approval in principle can be done much quicker. It takes time to get all the necessary documents together. Bear in mind that when you sign the initial sales contract (the compromis de vente) for your property, it is a condition of the contract that you receive a confirmed mortgage offer within 45 days. This may seem like plenty of time, but just one hold-up can drag things out.
- Getting your finance organised means you will know how much you can afford.
- Having an approval in principle puts you in a better position. The estate agent will consider that you are a serious buyer and, most importantly, so will the seller. Any seller, given a choice, will prefer the purchaser who has their finance in place, rather than somebody who has yet to apply. And, if you can proceed immediately, you could negotiate a price reduction.
The French mortgage market
For a residential property purchase there is a good choice of mortgage products on offer:
- Interest only repayment
- Capital repayment
- A combination of the above
- Fixed rate
- Variable rate
- A combination of the above
Loan to value rate can go up to 100%, although the normal LTV is 80% to 90%.
To see current best buy tables, click here [opens in a new window]
You can apply directly to the bank(s) of your choice or you can use a French mortgage broker. A broker has the advantage of a wider choice of products. Those used to dealing with overseas mortgage applications can often provide documentation in English. Some can also advise you as to whether a French mortgage or a UK mortgage would be the best for your specific circumstances.
Lending criteria
When applying for a French mortgage, French banks will look at your level of debt as well as your income. If your debt level, ie UK mortgage, rent, personal loans, maintenance/alimony payments plus your French mortgage, exceed 33% of your gross income, your application will be refused. However, different lenders use different criteria to make this calculation. While one lender might refuse you, another might accept your application. This is another good reason to research your options as early as possible. A good French mortgage broker will also be aware of the criteria used by any particular bank and will be able to advise you accordingly. Your broker can check your file before sending it to the bank for approval. This can save you a lot of time and frustration.
Documents you will need
- Proof of identity
- Copies of birth, marriage, divorce certificates
- Proof of residence
- Proof of income and outgoings
- At least 2 years accounts if you are self-employed
- Bank statements
- Property details (when you have found your new home)
Fees
- Bank arrangement fees: 0.5% to 1% of the loan value
- Notaire fees specifically for the mortgage registration: 1% to 2% of the loan value
- Broker fees: variable. Some charge an application fee, others a percentage of the loan or a flat fee. Some don't charge at all as they are paid a commission on the products they sell.
Insurance
Life insurance to cover the amount of the loan is obligatory in France. In France, mortgage providers will usually insist that you use their chosen provider.
This article is intended as an overview of the French mortgage market and the options available to you. It is always recommended that you seek professional financial advice concerning any overseas mortgage and property investment.
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