In the second of our three-part guide to French mortgages, we’re going to look more closely at the French mortgage products that are currently available for non-resident buyers.
We will follow this up with an explanation of the lending criteria that French lenders use, in order to calculate an applicant’s suitability for a French mortgage.
Both interest only and capital and interest repayment mortgages are available in France. However, lenders are far more comfortable with repayment facilities and, in reality, they rarely make interest only mortgages available for French residents on the domestic market.
Before we explore the various types of repayment mortgages from which borrowers can currently choose, it is nevertheless worth outlining what you could expect from a French interest only loan. Most lenders are only willing to offer interest only financing over an initial phase of the overall term, before the facility reverts to capital and interest repayment.
To take a 20-year mortgage as an example, this could mean two years of interest only followed by 18 years of repayment, or it could mean a more even split of 10 years each. Broadly speaking, lenders are happy for the borrower to make penalty-free overpayments during the interest only phase.
Full-term interest only mortgages have become very rare in France, as they are judged to be a risky form of credit by the banks. Where they are available, potential borrowers will invariably be asked to prove that they have other property and financial assets to the value of 120% or 150% of the loan amount.
Most new buyers will find that there are a lot more repayment mortgage options available to them. Repayment mortgages generally benefit from lower rates and can be arranged over a term of up to 30 years. The market offers three types of facility: variable rate, fixed rate and capped rate.
Variable rate repayment mortgages are typically tied to one of the EURIBOR base rates – this is the ‘European Inter Bank Offered Rate’ and is the Eurozone’s equivalent to the LIBOR. The rate which applies to your variable mortgage will therefore depend on movements in the EURIBOR index.
It is important to note that a rate rise may not necessarily result in your monthly installments increasing, as you may be used to in the UK. Instead, the bank may continue charging the same amount on a monthly basis but simply lengthen the overall term of your facility.
The most popular repayment mortgages on the French domestic market have rates that are fixed for the duration of the term. UK borrowers may be pleasantly surprised to see how low these rates can be, given the level of financial security that they guarantee. You should nevertheless bear in mind that the banks tend to penalise borrowers who wish to make partial or full capital redemptions when on a fixed rate mortgage.
The most recent introduction to the French non-resident mortgage market has been that of the capped rate. In essence, this facility works in the same way as a variable rate. The bank, however, will set an upper limit on the rate which applies during part or all of the mortgage term.
This option provides a certain level of security for those who are concerned about rising base rates, while at the same time generally allows for penalty-free overpayments. In these times of financial uncertainty, it has proved to be a very popular choice among non-resident buyers.
French lenders are historically quite conservative when it comes to granting mortgage financing. If you apply for a mortgage, you can expect to have to submit extensive paperwork relating to every aspect of your financial profile. So-called ‘self-cert’ mortgages have never been available in France.
The French bank will tend not to carry out a credit check on non-resident applicants, or even ask for the credit score to be submitted. Instead, they will analyse personal bank statements to pinpoint all financial transactions made over a period of the three last months. From this data, the following must apply in order for the borrowing candidate to qualify for the mortgage:
- Funds for the borrower’s contribution to the purchase (a minimum of 15%) must be clearly available, in addition to the 7% or so of the purchase price which is paid by way of notaire’s fees to register the acquisition.
- No more than a third of the borrower’s income can be taken up by contractual monthly outgoings. These can include mortgages, personal loans, rental payments and maintenance payments, in addition to the proposed monthly installment on the French mortgage.
- After having considered the proposed new French mortgage, the total balance of loans and mortgages under the borrower’s name should not exceed five times their income.
These criteria and the mortgages available will always vary from bank to bank. It is therefore strongly recommended to speak with an independent broker in order to establish which provider is most suited to your French mortgage requirements.