Owning a property in France represents the realisation of a dream for countless British buyers. However, for those who have chosen to buy under joint names, the ownership of a French house can soon become problematic in cases of divorce or separation.
Here we’re going to take a quick look at how a French mortgage may help to resolve this difficult situation.
Unless all parties involved are happy to continue owning the property under joint names, or the property is to be signed over to a sole name in exchange for other assets, one of the owners will be required to buy their ex-partner out. Such transactions are commonplace in France, and will have to be formally drawn up by a Notaire. In order for this to happen, a third-party valuation must be instructed so that all parties (including the Notaire) are satisfied that a fair price is agreed.
For a mortgage-free property, one of the joint owners would then have to pay half of the agreed value in order to buy the other partner out (assuming the 50% of the property is owned by each partner). If this amount is not immediately available in cash, a French mortgage provides a straightforward alternative. As the transaction only represents 50% of the property’s value, lenders would generally be happy to finance the whole amount required under these circumstances.
Things become more complicated when a mortgage is already secured in joint names against the property in question. Here the ‘buyer’ only needs to pay their ex-partner for half of their mortgage-free share in the property – in other words, for half the equity held between them. Meanwhile, the existing mortgage would either be reimbursed in full or signed over to the eventual sole owner.
In the situation above, a new French mortgage can again be used to facilitate the transaction. The new lender would have to agree to refinance the existing mortgage under just one name. The buying partner could also apply for some or all of the equity share due to also be included in the new mortgage funds. This would be obtainable, provided that the total financing package does not rise above a certain percentage of the property’s value (generally 70% or 80%, depending on the lender).
If you are in the position of needing to buy an ex-partner or ex-spouse out of your French property, you will also need to bear in mind the auxiliary expenses involved in doing so. Primarily, the Notaire will charge a fee for registering both the transaction and the new mortgage. If an existing joint mortgage is in place, there may be early redemption penalties charged to come out of it. The new lender will also charge an arrangement fee.
However, you can be astute with how these charges are all financed. If the new mortgage being granted only represents a small fraction of the property’s value, the lender may be happy to include the costs within their facility. Always remember that any mortgage will be directly guaranteed against the property, so the loan size can always be negotiated until it reaches the 70% or 80% ceiling mentioned above. All banks will instruct their own valuation of the property in order to ensure that this loan-to-value ratio is being adhered to.
Although this type of mortgage is readily available on the French market, please bear in mind that it is not as straightforward as raising finance for a classic acquisition. As the buying partner already owns a share of the property, it can be considered as an ‘equity release’ facility. If an existing mortgage is involved, the new lender may deem it to be a re-mortgage. Lending criteria may differ for the varying types of facility, and the interest rates charged may be higher than for a standard purchase.
To find out whether you qualify for this type of mortgage in France, it is always advisable to consult an independent French mortgage broker. The broker will be able to assess your situation, before suggesting the various options which may be available through the different banks. This will help you to gauge feasibility on a financial basis before Notaire is instructed, and ultimately may prove the difference between a smooth transaction and a painfully drawn-out process.