Usually we focus on how to be eligible and obtain a mortgage in France to buy the property of your dreams.
This week we flip this on its’ head, and explore how to NOT be eligible for a French mortgage. What makes risk-averse French lenders nervous? What conditions would be fulfilled which might lead to a “Non”?
This should be caveated with “every lender has different criteria” and “every buyer is different” – but in our experience, broadly speaking, the following are major stumbling blocks.
You’re over 70
This is a very common problem for some of our readers. Many are aged over 70 and looking to buy a property, or possibly even release equity from their French home. The majority of lenders will look for borrowers to be aged around 70-75 at the end of their mortgage term, not the start. It is possible to obtain finance if you are aged between 60 and 70 if you have a strong financial case, and are happy to pay the higher insurance premiums. If you’re aged over 70, a French mortgage in Euros is not going to be the right solution for you.
You want to borrow less than the minimum
Every week we receive enquiries from readers looking to finance relatively modest sums of €50k to €80k. This is an immediate rejection, as the minimum for most lenders is €100k. This isn’t a property price of €100k, but a minimum loan value of €100k – so knowing your LTVs is important (see below). For US buyers, the minimum loan value is approximately €150k. If you only need to borrow, say, €50k, then I’d recommend finding another solution – it isn’t even worth your filling in our forms to find out if it will be possible. It won’t be!
You don’t know your LTVs
LTV – “loan to value” – is the amount you could be loaned against the value of your property. As recently as 12-18 months ago, British or EU buyers were obtaining 85% LTVs, meaning they only needed to put down a 15%. Now, post-COVID, mid-recession and pre-Brexit, LTVs for British and EU citizens are more around the 75% to 80% level (with a really strong profile). This has a bearing on how much you will need to put down. Combining the LTVs and the minimum loan amount, a British buyer needs to be looking at properties of at least €120k-€125k if they are looking for finance.
For US buyers, LTVs are running at around 60% (at the time of writing – November 2020) which means a 40% downpayment. Also, the minimum loan value for US citizens is around €150k, so I tend to advise US readers if they aren’t looking at properties valued over, say, €240k-€250k, it isn’t going to be worth pursuing the French mortgage route. There just isn’t enough for the banks to get their teeth into. Lending to US citizens or taxpayers is more complex because of FACTA regulations, therefore the risks are greater for the (already risk averse) lenders.
You have insufficient income
French lenders operate on a very strict income-to-debt ratio. Well come to debt in a minute, but first let’s look at income. Whether it is through salary, self-employed income, company dividends or pensions and investments, you need to be able to demonstrate a reliable, sustainable income. Taking the minimum loan value of €100k for British buyers, very roughly, if you don’t have an income of around €25k minimum (with no other debts) you aren’t going to be eligible. If you have standard debts like rent or other mortgage, car payments, loan payments etc, then you could find that your income needs to be upwards of €40k-€50k to be considered.
You need to be able evidence the income, ideally a minimum of three years.
You receive the wrong type of income
In some cases you might think you have sufficient income coming in to be eligible, but the French lender’s definition of “qualifying income” doesn’t include what you are receiving. A good example would be income drawn down from a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS). For some lenders these are considered capital – i.e. you are drawing down on a capital sum, rather than receiving an “income”. This can stop your eligibility dead in its tracks.
Equally some rental income – if it isn’t evidenced – may not qualify as income for the purposes of a mortgage. If you have successfully been renting our your apartment in the Alps for years, or you have 3+ years evidence of a successful gite business, then you will stand a good chance of having the bank factor that in. If you put your property on the market to rent for the first time ever, and try to argue that rental income be taken into consideration, I suspect you’ll be disappointed.
You’re asset-rich but cash-poor
French lenders love liquidity. A strong property portfolio makes you an attractive proposition for a lender, but if (a) you’re carrying too much debt as a result or (b) all your finances are tied up in fixed assets, the lenders’ over-rising concern will be how you are going to actually pay the loan back. How will cash flow from your account back to the lender every month if you are asset-rich but cash-poor. As well as the income discussed above, French lenders typically want to make sure that you have a liquidity buffer. If your income ground to a halt, and all you have is a load of bricks and mortar, how are you going to physically repay their loan? This conservative, risk-averse mentality can be frustrating for property developers and entrepreneurs, but that approach is what has kept the French property market very stable for decades.
You have too many outgoings
Thinking back to the income-to-debt ratio, even if you have a decent income coming in, you can still fail to be eligible if you have really high outgoings. If you have a really expensive car loan, or you live off your credit cards every month, this is going to hit your ratio and reduce the amount you can borrow – or even render you ineligible. Remember that “credit” in the way that other countries use it is frowned upon by French financial institutions. They will want to see details of your outgoings and copies of bank statements. In many ways a French lender’s approach is much more forensic than other countries where they take a macro view of your income and assume you’re “good for it”‘. If you live off your overdraft, or don’t appear to be financially prudent, this could damage your chances.
If you really want that dream property in France, and you’re not in a rush, it is worth trying to tidy your finances up and get them in order before you approach a broker or a lender. Why scupper your chances if you don’t need to? See if you can payoff the car loan, get those credit cards down and not rely on the overdraft – you will significantly improve your chances of getting finance in France.
Please don’t hesitate to contact us – [email protected] – if you want clarification on any of the above, and we can help you to establish the likelihood of being eligible for a French mortgage in Euros.
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