Frequently asked Questions about mortgages for French property.
Q. How much will I be able to borrow?
Most lenders in France will let you borrow 80% of the value of your property, and some will let you borrow more. It all depends on your monthly income and the duration for which you shall be taking out the mortgage.
Typically the calculation works on the principle that the total monthly costs of the French mortgage payment, plus any UK mortgage or rent, plus any other long-term borrowings, should not exceed a third of the buyer’s gross monthly income. As an example, if a buyer’s UK mortgage was £500 per month and the proposed French borrowing was £300 per month, this totals £800 per month, so the buyer’s gross pay would need to be at least £2,400 per month for the bank to consider the loan. Mortgages are generally offered on a capital and interest method (repayment mortgage) and are granted over a 5 to 30 year period, depending on the bank and the amount borrowed.
Interest Only mortgages are becoming more popular in France because they can provide more flexibility. They enable the property buyer to borrow more money, but pay less on a monthly basis. The monthly repayments would only cover the interest on the mortgage amount and so the buyer would not be paying any of the underlying loan capital. It is a necessity however, that provision is put aside to pay off the loan at the end of the term. Certain Interest Only mortgages are a good option for those planning to sell the property or pay off a large sum after the initial mortgage period of say five years.
Of course, the amount you can borrow is entirely dependant on your personal circumstances. To obtain a personalised quotation complete an online application.
Q. What are the additional costs of buying a French property?
In addition to the standard fees, most lenders will charge an up-front fee of 0.5 – 1.0 % of the amount borrowed. There is also a cost for registering the mortgage, usually between 1 – 2% of the loan amount. Life assurance costs vary between lenders, but are generally 1% of the loan. French house prices normally include agent’s fees. If you see a property quoted with FAI after the price, it means ‘ Frais d’ Agence Inclus'(Agent Fee Included). So, the buyer in France usually (but not always) pays the agents fee. The price of the property, excluding the agent’s fee is called the ‘ net vendeur ‘ price. In addition, the buyer has to pay the notaires fees. It is also worth knowing that 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%.
If you choose to use a mortgage broker, there may be additional broker fees. FrenchEntrée Mortgages Services charge no fees, except for mortgages under 50,000 euros where an application fee of £250 will apply.
Q. What will the interest rate be?
The interest rate will depend on whether you take a fixed rate or a variable rate mortgage.
Depending on the currency exchange rate it may be an attractive option to take out a Euro mortgage for a fixed term which you can then switch back to a UK mortgage when the interest rates are more favourable.
Q. How long does the mortgage process usually take to complete?
This depends on the efficiency and response times of both the borrower and the lender, but FrenchEntrée’s mortgage team can process applications in six weeks. 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.
Q. Will my income be sufficient? / Are self-employed people accepted?
In order to assess whether you can afford the mortgage you want, most French lenders will take 1/3 of the gross amount you receive each month from all outgoings, including salary or profit from self-employment, or pension income, 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.
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. If you are therefore borrowing on a property that is to be let, you can afford a larger loan and should consider a Buy-to-let mortgage. 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 30 years in duration, but most borrowers are reluctant to agree durations which go beyond the borrower’s 70th birthday.
To obtain a personalised quotation complete an online application.
Q. Can I get a fixed rate French mortgage?
Yes. Fixed rate mortgages are the most common type on the French market. An advantage of such a mortgage is the fact that early repayments are always possible for fixed rate loans, and the maximum fee that can be charged is 3% in the early years. 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.
Q. Can I get a variable rate French mortgage?
Yes they are freely available and widely used for French mortgages. These loans can often be obtained at a cheaper rate of interest than the Fixed rate schemes mentioned above and can usually be cleared in all or part before the end of the loan period without any penalty. 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.
Q. Can I get a mortgage approved before buying?
Yes. There are many benefits to getting your mortgage approved by a bank (Approval in Principle) before putting an offer in on a house. An estate agent will automatically refer you to a bank to get the proposed mortgage approved when you put in an offer on a house, so if you have already had your mortgage approved, it will save you time and thus give you an advantage over other buyers. The estate agent will also see you as a more serious buyer and it may enable you to achieve a better price on the property. You will also know how much you can borrow and how much it will cost you so you can ensure that you are looking at properties within your budget.
Q. Is it better to remortgage on an existing property or obtain a new mortgage?
Remortgaging is not very common with French lenders, although some are starting to offer mortgages on this basis, allowing the borrower to take advantage of rising values and equity and it can also be a quicker process. In general, if you think that you will need additional funds later, it is better to raise these at the time of purchase, when it may be easier to obtain the finance. For example, if a buyer was to raise money for home improvements, most banks would insist on paying the builder directly on invoice, rather than allowing the borrower to handle the money. Even if it proves to be possible, the extra funds are likely to be more expensive than those raised for purchase. With remortgaging you may have to pay your existing lender a redemption fee of up to 3% of the outstanding loan amount and the repayment period may be longer. If remortgaging a French property care needs to be taken to ensure that there are no excessive redemption penalties and the applicant could have an application fee of 1% of the loan plus legal fees of perhaps 3% of the mortgage value.
It is always wise to discuss you personal situations before making any decisions. To determine whether remortgaging would be beneficial for you, contact FrenchEntrée’s mortgage consultants are always happy to provide advice.
Q. What information/documents do I need to apply for a French mortgage?
Please see our mortgage application section and form which explains the information required.
Q. What happens if I have signed a Compromis de Vente but the mortgage is declined?
Once you have found your French property and a price has been agreed with the vendor, both parties will sign a preliminary contract called a Compromis de Vente and the buyer lodges a deposit with the estate agent or notary. The preliminary contract is binding to both buyer and vendor. The balance of the purchase price and all fees are payable to the notary before the completion date, when the vendor and buyer sign the definitive sales contract.
Under French Law, if your mortgage is declined and you are no longer able to buy the property you will get your 10% deposit back. View our Compromis de Vente article for more information.
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. You will need to get an estimate from a French-registered builder covering the works to be carried out, and this will form the basis of the amount that can be borrowed.
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. Holiday rentals will not usually be accepted for this purpose. View our Buy-to-let Mortgages section, or more information on French holiday rentals.
Q. Can I get a Leaseback French mortgage?
Yes. Leaseback is different to buy-to-let in that the property buyer has some weeks in the year in which they can use the property; the duration of a Leaseback mortgage also tends to be longer than a Buy-to-let. A true Leaseback scheme in France is when a development of properties in a complex or single property has its letting out managed by a professional management company. The properties are usually let out over a 9 year period with a limit of how much time the owner may use the property for their own use, typically no more than 4 weeks a year. The rental income is usually guaranteed for the 9 years period at the out set at for example 4.5% of the value of the property purchased. For more advice on French Leaseback schemes contact our mortgage consultants.
Q. Will I need a French bank account?
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 it is recommended that you start working on this at an early stage during your project. View our article on opening a French bank account.
Q. Do I need to take out Life Assurance?
There is no legal obligation to take out a life assurance policy, but many banks will not allow loans without it. If you are borrowing less than 60% you are more likely to be able to arrange a loan without life assurance. It will always depend on your lender; some lenders are happy if you just get a quote. Life assurance does have many security benefits for you and lender and can be a good way to manage your loans. If you take out life assurance it is done at the same time as the mortgage at standard rates.
If you need more information, or wish to discuss a specific project, please contact our FrenchEntrée mortgage consultants.