Your guide to French mortgages
3rd April 2013, 0 comments
The single most important element in successfully getting a mortgage in France is income.
How much can you borrow?
There are no ‘self-certification' loans nor non-doc (‘sub prime') loans in France, therefore, you need to prove you are receiving a regular income that can cover all of your debts three times over. This is because strict Banque de France lending laws state that your total debt cannot exceed more than one-third of your total income. In some circumstances, depending on the bank, you may get a slightly larger margin but this is never more than a few percent. So if you earn EUR 3,000 a month as a salary, then your mortgages (including the new one), credit cards, loans and other debt repayments cannot come to more than EUR 1,000 per month.
Example of mortgage calculations
Purchase price EUR 300,000
Deposit of 15 percent EUR 45,000
Notary fees (approx. 8 percent ) EUR 24,000
Total cash needed: EUR 69,000
Mortgage: EUR 255,000
The repayments for this mortgage over 25 years at 4 percent would cost EUR 1,345 per month, plus approximately EUR 80 a month life insurance. This would mean that you would need to prove an income, after all other debts, of EUR 4000 per month, or approximately EUR 48,000 per annum. Depending on which bank you approach, this figure may be taken from your net or gross income.
The notary fees tend to work out as: 6.3 percent in government taxes (like stamp duty); plus 1 percent in notary administration fees; and approximately 1 percent of the mortgage amount assignment fee, if you are taking a mortgage to assign the bank's legal interest in the property.
If you're already paying tax in France, you may be able to borrow up to 100 percent of the property purchase value (i.e sale price less estate agency fees); UK and other EU residents/taxpayers may be able to borrow up to 85 percent; and non-EU residents/taxpayers may be able to borrow up to 80 percent.
The loans can be for between 5 and 25 years (but most commonly 20 years), depending on your age and the bank you've chosen. As the buyer you need to fund the deposit (minimum 15 percent) plus the notary costs (approximately 8 percent).
All mortgage interest rates in France are linked to the Euribor (Euro Interbank Offered Rate), which was introduced at the beginning of 1999 along with the European single currency (the euro), because European banks considered that it was necessary to establish a new interbank reference rate within the Economic and Monetary Union. Click herefor more information.
What types of loan are available?
Variable interest rate mortgages
These are based on the lending bank adding a margin to one of the Euribor indexes, normally the 3-month or 12-month rates. They are typically fixed for anything from the first three months to five years, then go up or down as the market index moves. Some banks do offer variable rate mortgages that can safeguard against rises in the interest rate by capping the maximum rate, or by extending the term of the loan rather than raising the monthly payment. Most products also give you the option to convert to a fixed interest rate at any time.
Fixed interest rate mortgages
The repayments with this type of mortgage are fixed for the whole term of the mortgage, so you know exactly what you will be paying each month over the whole term of the loan. However, fixed rates are usually higher than variable rates and there are normally larger penalties for paying off your mortgage early than you would have with a variable interest rate mortgage.
Interest-only (prêt infiné) mortgages
Hugely popular in the UK and US, interest-only deals are becoming more available in France if you want to reduce the monthly repayment to a minimum. However, there are some differences with the products in other countries:
- Assurance vie (life assurance) linked: With this loan, instead of placing your deposit into the property, you take a 100 percent interest-only loan and are obliged to place the deposit (minimum of 20 percent) into a French investment scheme which runs alongside the mortgage. These schemes can have significant inheritance planning advantages and can offer flexibility if you are going to buy and sell a lot of properties, as they can be kept as the deposit for the next purchase.
- Dual phase: Some banks also offer a product, which is interest-only for the first few years of the mortgage and then becomes a repayment loan for remaining. This is particularly useful if you believe you will pay off large sums in the first period.
- Asset-backed: This is an interest-only product which does not require a deposit into an investment scheme and does not have a second repayment phase. You simply need to provide evidence of your other net assets up to a value of between 120 percent and 150 percent of the loan amount.
For anyone looking to purchase on a buy-to-let basis, this type of mortgage does not really exist in France. Future rent can be taken into account but the bank will normally devalue the property by 10 percent and then lend 85 percent of the 90 percent valuation, meaning a larger deposit is needed. The bank will also only take 80 percent of possible 'long-term, unfurnished' rental income into account, which is considerably less than what you will probably achieve through seasonal weekly lettings.
Bridging loans (Prêt relais)
This is a loan for those purchasing a property in France who have yet to complete the sale of their existing French property. In most circumstances the loan is available for up to two years pending the sale of the existing property, as long as there is enough equity in it. The loan may be up to 70 percent of value of the existing home. The borrower generally only pays the interest element of the loan, with the capital being paid off on sale of their present property.
Expatica / Based on the original article by Expatica expert Steven Grover.
This information is provided as a guide only. If you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
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