People from all over the world fall in love with France, and purchasing a property on the other side of the world is a substantial undertaking. We take a look at how Australians and New Zealanders can finance their dream French property purchase with a French mortgage.
How can I get a French mortgage?
If you’ve saved your deposit and have set your heart on buying in France, your best option may be to get a French mortgage. But how does this work for buyers from down under?
Select French banks are able to provide financing for people whose income comes from outside Europe. Many lenders have departments dedicated to non-resident borrowers, who are happy to underwrite mortgage applications from Australians and New Zealanders buying French property. Despite recent economic turbulence in Europe, the majority of these banks have retained their non-resident mortgage activity and there is a healthy appetite in France to lend to foreign property buyers who meet their criteria.
To apply, you will need to provide full disclosure of your existing finances, which should all be backed up by relevant formal documentation and statements. To help smooth out the process, most banks will accept electronic copies of your paperwork. A good French mortgage broker will be able to explain to you how affordability calculations work.
How much of a deposit will I need?
You should expect to pay a deposit of at least 20% of the purchase price, in addition to the obligatory notaire’s fees.
What are the benefits of a French mortgage?
In the first place, right now you would be able to take advantage of the very attractive interest rates available in Europe. French mortgages are invariably linked to the Euribor (Euro Interbank Offered Rate), which has dropped to a historically low level in the aftermath of the global credit crunch. The French mortgage market has therefore benefited from appealingly-priced facilities, which are available not just domestically but also to overseas investors borrowing in euros.
For example, a variable or floating mortgage may offer a starting rate as low as 3%. Alternatively, the classic French mortgage has a rate which is fixed for the duration of the term. You may find that you are able to fix a rate at under 5% for the duration of a 20 or 25 year term. These rates tend to compare very favourably with domestic Australian mortgages, and often prove a cheaper alternative for those who are planning on drawing more funds from an existing line of credit.
What if I have enough money to buy in cash?
The low cost of borrowing could make a mortgage an attractive option, even if you are in a position to buy in cash. Financially, it may make most sense to protect a portion of your dollar savings by taking the finance out in euros. This would put you in the position of servicing a small amount of interest in France, while the dollars you shielded are earning a higher level of interest in an Australian investment or savings account.
This will be further accentuated if you choose to let your new French property out to holidaymakers or long-term tenants. If you don’t plan to make France your permanent home you could draw of rental income from it. In doing so, you would be able to service the mortgage repayments by using a direct source of euro funds. This means that you would not be exposed to foreign exchange transaction charges and rate fluctuations on a monthly basis as you pay the French mortgage down.
There is also a tax benefit to be gained. You will be charged income tax on the rental income that you earn in France. By taking out a French mortgage, you could also make use of potential tax benefits that can allow you to offset rental income against mortgage interest. As with all matters relating to tax it is always worthwhile taking professional advice.
A further fiscal consideration is that of the French wealth tax system. This is charged on the net worth of properties over a certain value, so if you delay paying off the full amount you could avoid this tax until the mortgage is paid in full.
Generally speaking, if you require a mortgage to fund your French purchase, it makes sense to hedge your foreign exchange exposure by securing a euro-denominated mortgage which shares the currency in which the property is valued. But no two purchases are ever the same and it can obviously be quite daunting to set about arranging a credit facility with a French bank. It is therefore always advisable to initially consult a reputable French mortgage broker.
We offer a French mortgage brokerage service, in English, with knowledgeable staff at our disposal. This will help to allay any fears you may have at the onset of the process, in addition to giving you an informed idea as to the level of financing which may be available in your own circumstances. By applying through a mortgage through a broker, you should expect to receive a fast-track service from the lender and often exclusively reduced rates, all of which may help to take some of the uncertainty out of what may seem at first to be quite an ordeal.