You wouldn’t go and dine in a restaurant if you didn’t think you had enough money in your bank account to pay the bill. You probably wouldn’t buy a car from a dealer without knowing if your credit card might be refused. And yet many people spend their time looking at properties online, viewing them in person and even signing legally-binding agreements without knowing if they can actually afford it.
If you’re thinking of owning a property in France, and know you will require finance to achieve your goal, then don’t wait until the 11th hour before you approach a bank or broker.
With mortgage rates generally lower than many other countries, and attractive long-term fixed rates available, buyers are able to stretch their budgets and get more for their euro.
Be warned though, it is never going to be as easy or straightforward as you think for a non-resident to get a loan in France, reknowned for its’ conservative and risk-averse banking policy.
The amount you can borrow for a mortgage in France is ultimately restricted both by the value of the property and your income.
In very basic terms, if your combined credit commitments are greater than 33% (one third) of your household income, a French lender will be unable to offer you further credit. This will include your formal liabilities like rent, mortgage, loan payments, credit card payments etc). French lenders are fixated on affordability and liquidity. If you earn a lot, but are also carrying a lot of debt, you may find your options are reduced.
Get the ball rolling early…
If you know that either need – or would to prefer to buy with – a French mortgage, the most important thing to work out early on is (a) am I eligible for mortgage in France and (b) how much can I borrow?
It is possible in France – via a broker or directly with a lender – to get a non-binding ‘Approval in Principle’. This will give you the reassurance that you can begin looking at properties in your price range, and won’t be wasting anyone’s time – yours, the vendors or the agents.
If you have this ‘Approval in Principle’ it will also help with negotiations with the vendor, and you will be taken ore seriously.
A healthy scepticism…
Being really candid for a moment, French vendors regard international buyers with a wary eye. They want to sell their property to someone from overseas as there is a perception they will get more than if they sold to the domestic French market. And that perception is not entirely misplaced.
Conversely there is a nervousness that the sale might not go through – either because the buyer will change their minds, have a change of circumstances at home which affects their desire to buy in France (it is a discretionary purchase, after all) or they need finance but can’t get the mortgage.
Every French vendor will have heard horror stories about overseas buyers promising the earth and then failing to deliver, potentially wasting months of the vendors time if their property was not being actively marketed.
Any property owner looking to sell their property will always, without exception, prefer a cash buyer. If the potential buyer is buying with a mortgage, then having an ‘Approval in Principle’ will provide the vendor with some financial reassurance. It gives the vendor confidence that you’re signing the Compromis or Promesse de Vente – binding the vendor – with a strong possibility you’ll be able to secure finance.
Lastly, if you are buying a property through an estate agency, which most international buyers do, then having the ‘Approval in Principle’ will also give you more credibility with the French agent.
Any French agency will be able to give a litany of examples where sales have fallen through because the buyer failed to get a mortgage – OR – didn’t get started early enough and package up their finances in an attractive way.
Remember that estate agents which work in the international market receive scores of enquires every week. You want to build credibility and a relationship early with the estate agent, and get them on side. Being able to demonstrate that you have done your financial due diligence and have an offer in principle means the estate agent (who, in the main, works on sales commission and only gets paid if they sell the vendor’s property) is one way of doing this.
The only real lending solution in France is to take out a mortgage, in euros, with a French lender. A UK bank, for example, would be unable to lend on a French property as they aren’t able to place a legal charge on it.
Each French bank applies their own criteria, and the process can be very labour intensive and not a little painful. Language and culture barriers add an extra piquancy.
We’d always recommend you work with either a lender which is well-versed in financing overseas buyers, or a specialist broker who is familiar with the idiosyncrasies of the French banking system and can find you the best possible deal.