Buying a property in France can be a very daunting process. We hope that the first two parts of our guide to French mortgages have given you a good idea of what to expect when arranging financing on your purchase.
You will have seen that, broadly speaking, it is a similar process to making a mortgage application in the UK. In the final part of our series, we’re going to look at some of the more unique aspects specifically relating to French mortgages, so you can plan ahead efficiently and avoid any unpleasant surprises.
The clause suspensive
It is very common in France for a mortgage clause to be written into the sales agreement. As a buyer, this will protect your deposit should your mortgage application be refused and you are unable to complete the purchase for financial reasons. This is known as a clause suspensive and it is advisable to request such a clause, even if you already have a full financial pre-approval with the lender.
Variable monthly repayments
If you take out a capital and interest mortgage with a ‘variable’ or ‘floating’ interest rate, the rate charged by the lender will be determined by movements in the base rate. However, unlike in the UK, a rise or fall in the base rate does not necessarily mean that your monthly mortgage instalment will increase or decrease accordingly. Instead, it is more common for the bank to put these changes into effect by extending or shortening the ultimate term of your mortgage.
This means that you are able to plan ahead, knowing that your mortgage outgoing should not be significantly modified even if there are big changes in Europe’s financial markets.
It is obligatory with almost all French mortgages to have a life assurance policy assigned to the loan. Furthermore, it is becoming increasingly rare for the lenders to accept an existing policy for these purposes. You should therefore expect to have to take out new life assurance cover as part of the mortgage application process. You may be asked to undergo medical examinations in order for the policy to be set up, and the monthly premium will naturally add to the overall cost of your French mortgage.
It is extremely rare for a mortgage which has been secured on a French property to be denominated in any currency other than euros. If your income is received in sterling or anther currency, movements in the exchange rate can affect how much of that income is spent on your monthly instalments. You should therefore seek the services of a dedicated foreign exchange specialist to help set up a regular transfer plan which always benefits from the best rate available.
In the UK, we are used to lenders employing a system of income multiples to determine whether an applicant qualifies for a mortgage or not. We outlined a similar criterion used by French lenders in Part 2 of this series.
However, it should be noted that French banks are traditionally most interested by how much of your monthly income is taken up by servicing the debt. If you are worried that a new mortgage may not be feasible due to the high outstanding mortgages balances you have elsewhere, it is always worth investigating if the French banks do indeed see it that way. A broker will be able to inform you very quickly whether a French mortgage would be available to you.
Self-cert mortgages have never been an option in France. Lending institutions have always asked for full financial disclosure from mortgage applicants. You should therefore expect to have to send over a full and extensive pack of statements and identity documents in support of your application. Once again, an experienced broker will be able to provide information on which paperwork will be required, and whether this should be submitted electronically or in original.
Setting up a gite
Many of you will be considering a purchase with the intention of moving out to France to run a gite business. If your plan is to immediately relocate in this way, make sure that you do your homework first. French banks look very cautiously upon these projects. Fundamentally, they expect you to be able to prove the continuation of existing forms of income elsewhere to supplement the potential income from your new French property. That potential property income in itself is generally not considered to be sufficient to support your mortgage.
Please click on the following link if you’d like more information on how to Apply for a French Mortgage