We’ve spoken to several clients over the last few weeks who are keen to understand more about interest-only mortgages in France.
In many countries, including the UK, an interest-only mortgage is a cost-effective way to borrow, and works particularly well for property developers and investors.
Interest-only loans are possible in France but certainly harder to come by than a more traditional repayment mortgage. French lenders consider them to be a higher-risk option, so the barrier to entry is higher. They are certainly less common – figures in 2019 suggested that 85% of mortgages in France were traditional, fixed-term repayment loans. In the main, interest-only loans are dealt with on a case-by-case basis, and applications for these have to be strong and uncomplicated, with a significant element of liquidity.
What does this mean in practice?
Simply put, to qualify for an interest-only French mortgage, you will need to be able to demonstrate to the French lender that you actually have sufficient liquid assets to repay the capital sum, before you even take out the new loan. In general, the French lenders will require you to have assets equalling 150% of the loan amount (this might include savings, liquid investments and property equity).
Let’s take an example. We work with BNP Paribas International Buyers who offer an interest-only, fixed-rate loan, with a duration between 7 and 14 years. There is a minimum loan value of €200k, and typically a non-resident/international client is able to achieve 70% to 80% with a French lender.
Let’s imagine you are looking to invest in a property valued at €500k. You have approximately €200k to put down as a deposit, and so are looking for a €300k interest-only loan to finance the purchase. You would need to be able to demonstrate not just the usual income/affordability rules, but also that you have sufficient liquidity to repay the €300k should that be required.
What are other options?
A number of lenders and/or private banks can provide interest-only finance facilities secured against a French property, but only if the borrower develops a banking relationship with the lender. Developing a relationship will typically include placing financial assets (savings, shares, bonds etc) with the lender.
International and domestic banks in France will consider interest-only loans of a minimum of €500k, but where you’d be required to put down one years’ payments in a separate account to be held in escrow with the bank.
If you have a more complicated financial setup, where worldwide assets and income need to be factored in, this would tend to be the domain of niche lenders and private banks. Whereas a retail bank will look at the classic income affordability ratio, private banks will take a more macro view. For these operators, mortgage business is not their main operation – it possibly only represents a tiny percentage of their portfolio. They tend to use their mortgage offer as a means to increase their assets under management. This means that a private bank or niche lender has the ability to create a bespoke interest-only mortgage offer, factoring in different assets and income streams.
If you would like to discuss the likelihood of an interest-only mortgage for your project, do get in touch: [email protected]
Or simply apply on our online FrenchEntrée mortgage application form here.