The French mortgage market has been tightening over the past year, with the booming property market and the ongoing pandemic causing mortgage lenders to reassess their lending criteria.
Back in February 2021, the High Council for Financial Stability (Le Haut Conseil de Stabilité Financière or HCSF) issued recommendations of ‘prudence’ over housing loan practices for banks and mortgage lenders (see the full recommendations, in French, here). Now, these recommendations look set to become legally enforceable, with the HCSF announcing amendments to the conditions of granting of mortgage loans (les conditions d’octroi du crédit immobilier) from January 1st, 2022.
So, what are these changes, and what do they mean for property buyers seeking a mortgage loan from 2022?
Stricter Borrowing Limits of 35%
If you’re looking to take out a mortgage loan from 2022 onwards, the new laws state that borrowers are only eligible for a mortgage where repayments (including fees for the associated life insurance that mortgage borrowers must take out) do not total more than 35% of their income.
While the exact wording of the new laws has not yet been published, typically, this calculation refers to your income before tax. Other ongoing financial liabilities such as a second mortgage would also need to be accounted for.
25 Year Mortgage Terms
Mortgage terms will now be set at a maximum of 25 years, although shorter mortgage terms will continue to be available depending on the mortgage lender and the borrower’s individual situation. This is extended to 27 years in the case of a new build purchased off-plan, allowing for the deferment of repayments until the completion of the property.
Exemptions to these new rules will still be possible, but there are also restrictions placed on the amount and types of exemptions that can be made. Mortgage lenders will only be allowed to make exemptions on up to 20% of their mortgage loan contracts, of which a minimum of 80% must be for mortgages on primary residences and 30% for first-time buyers.
What Does This Mean For Borrowers?
In reality, these changes do not equate to huge changes in mortgage loan criteria, and many foreign buyers will not be largely impacted by the changes. First-time buyers and young buyers may be most affected by the changes in mortgage terms and income margins, meaning that a higher deposit may be required for those on lower incomes.
Financial advisors purchasing buy-to-properties will also not be able to deduct rental payments from their monthly mortgage repayments (thereby reducing their total financial liabilities). Instead, the rental income will simply be added to their income when calculating the maximum repayment amount.
Foreign buyers looking to take out a French mortgage will also need to demonstrate that mortgage repayments on their second property (including any overseas mortgage repayments on your first property) do not exceed 35% of your global income. Expect mortgage lenders to be vigilant in verifying your financial profile. In light of the pandemic, mortgage lenders are also much less likely to lend to business owners or self-employed workers in areas deemed high risk (tourism or hospitality, for example).
What Else Has Changed for Foreign Buyers?
As the mortgage market tightens for French residents, it’s understandably tightening even more for foreign buyers. French mortgages still remain an option, but there are much stricter eligibility criteria to be aware.
For British buyers post-Brexit, there is now a minimum loan amount of €150,000 (previously this was €100,000) – with an loan-to-value (LTV) of 80%, this would mean a minimum property purchase of €180,000.
For US and other non-EU buyers, the minimum loan amount is now €250,000 (previously this was €150,000) with a maximum LTV of 50%. In practice, this means you’ll need a minimum of a €250k deposit and a minimum property price of €500k. Mortgages are not currently being offered for borrowers over the age of 55 or self-employed buyers.
Need Advice on Your French Mortgage Options?
If you’re hoping to take out a French mortgage, but not sure whether you will be eligible, your first stop should be our mortgage zone. Our Essential Reading articles will talk you through every step of the process from French mortgage eligibility to the application process.
Once you’re ready to kick-start your French mortgage search, fill out our mortgage application form. Our independent mortgage advisors can advise you on the best options for you and put you in touch with mortgage brokers and lenders all around France.
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