We delve into the business of securing a mortgage in France and deliver the basic facts about French mortgages and buying French property.
If you’re moving to France and are tempted to buy a home there, you might be wondering how difficult or expensive it is for to get a French mortgage. This guide explains everything you need to know before buying your dream French property.
This guide, provided by French mortgage broker Private Rate, answers some important questions on getting a French mortgage:
- Should you buy property in France?
- How much can you borrow in France?
- French mortgage calculator
- Tax deductions for French mortgages
- Requirements and documents for getting a French mortgage
- How to apply for a French mortgage
- Types of French mortgage credit
- Mortgage types available in France
Private Rate offers the best loan rate, stellar service and added value throughout your real estate purchase from the beginning to the completion of the transaction. They negotiate exceptional financing conditions for you, with a wide variety of French financial institutions at all price ranges of residential and commercial property purchases.
The French property market has emerged as one of Europe’s core performing property markets, and with low mortgage rates it’s easy to see the attraction for expat buyers.
Data from Groupe Credit Agricole showed that sales volumes dropped slightly in 2018, though house price increases were still significant in some areas. For example, overall prices in France increased by 1.73%, but they rose by nearly 7% in Paris.
According to data from Banque De France, the average rate on a new mortgage was just 1.49% in December 2018 – a drop of 0.12% year-on-year, and the lowest level recorded in nearly 16 years.
However, foreigners should be aware that property transaction fees total around 10–15% of the purchase price, and capital gains tax applies if you sell the property (a total of around 35–40%).
These factors are particularly important for those planning stays of less than five years, as it might not be possible to offset the costs in a short time.
A French mortgage calculator with an associated affordability calculator can be found here.
French banks are equally as keen to write mortgages for foreign buyers as French nationals. The typical French mortgage allows a buyer to borrow between 70–80% of a property’s value, though some French mortgage brokers limit themselves to only 50% for non-European Union buyers.
A peculiarity to French mortgages is the legal requirement that your entire liabilities – including rents, mortgages and other regular expenses – must be no more than 30% of your net household income.
If your total mortgage payments are more than 30% of your household income, French banks are prohibited from extending further credit.
Thus, the amount you can borrow in France is restricted by both by the property value and your income. If you are aged over 65, the banks will not include earned income; only passive income or retirement benefits will be considered.
French lenders typically charge a set-up fee (sometimes called frais de dossier), which can be fixed or a percentage of mortgage. Associated administrative fees for setting up a French mortgage include the following:
- 1% origination/arrangement fee, with a €350 minimum (plus VAT). This can vary, so there’s a chance your mortgage broker can negotiate it down.
- Lenders may require a valuation survey, which typically costs €250.
- Notary fees can total around 6–8% for a used property, and 3–5% for a new-build or properties less than five-years old. The notary fees are fixed by law for many aspects of the property transaction.
While French banks are happy to extend credit to foreign buyers following the same vetting standards and fee schedule as with nationals, they may have some additional requirements.
In order to get the best French mortgage interest rates, and to secure against unforeseen currency exchange downturns, French mortgage providers may ask non-residents to open a savings account with a minimum deposit equal to at least 24 mortgage payments.
For example, if you were to secure a €100,000 mortgage with a 1.5% fixed French mortgage rate for 10 years, you might be required to lock up capital of some €15,000.
An additional legal requirement for obtaining a French mortgage is to purchase a life insurance policy equal to 120% of your mortgage, with the lender named the beneficiary.
Individual lenders may also require health and disability insurance policies, and may ask borrowers aged 50 years or older, or borrowing more than €150,000, to submit to a medical exam.
Many lenders will also request the borrower to obtain proof of insurance on the property, and any improvements thereupon.
When applying for the mortgage, you will need to provide the following documents:
- copies of the borrower’s passports;
- proof of income;
- self-employed individuals will need to show a set of audited financials for three years;
- bank statements for the last three months;
- current rental agreement;
- statement of assets;
- executed sales agreement (for the actual mortgage offer, not for a preliminary commitment);
- if the property is new or to be renovated, written estimates or invoices from French-registered tradesmen and copies of their certificate of insurance;
- if new improvements are to be constructed on the property, a property title or preliminary sales agreement for the land, building license, and the building contract and plans;
- if applicable, the title deed or loan deed with a complete repayment table if the property is to be financed with a remortgage or equity release.
French mortgages cannot be officially offered without presenting a property purchase agreement.
However, in some cases it may be possible to secure a certificate of commitment (pre-approval letter) for around €350, plus VAT, from a mortgage lender. This will usually allow you to negotiate with the seller and should be valid for three to four months.
Applying for a French mortgage is relatively straightforward, and a very similar process to other countries.
It can be worth consulting several mortgage lenders to see which one will give you the best mortgage interest rate. In France, there are many local and international banks offering mortgages to foreigners, as well as specialized mortgage providers focused on providing expat mortgages and services.
As a buyer, you can request an official mortgage offer from the lender of your choice once a completed sales agreement has been signed by the seller and buyer, and the bank is assured the buyer can both afford the loan (per French standards) and the property’s value supports the loan request.
Once accepted, the mortgage will proceed to underwriting for final approval by the lending institution.
There are three types of French loan guarantees, or securities, which may be offered to foreign investors against their loan. While international buyers may be more familiar with a conventional mortgage, residents in France can find cost-savings in the other mortgage credits on offer in France.
A conventional mortgage is taken care of by the notary, who charges a fee around 2% of the mortgage amount to complete and register all the sale documents.
The notary also ensures all terms of the previous mortgage on the property are satisfied to clear the way for the new buyer’s mortgage, and that the requirements of the new mortgage are fully met. This is typically in addition to administration fees charged by the mortgage lender.
This is a popular mortgage in France since the notary fees for this service are generally lower (only about 1%) because there is no requirement to pay stamp duty (publicité fonciere). It is very similar to a conventional mortgage, except that the mortgage takes first priority over all other charges on the property.
It may be possible to obtain this mortgage for a higher loan period of up to 50 years – although this is rare. However, it is only offered on old properties and does not allow the buyer to borrow more against the value of their property – for example, to fund renovations.
This is a newer mortgage option offered by French banks, aimed at reducing the borrowing costs associated with mortgages.
It involves taking out a loan under an institutional guarantee called la société de cautionnement, run by a group of organisations. The basic idea is that the risk of a mortgage default is shared among all participating lenders.
With this system, the mutual funder acts as the guarantor; in return the borrower pays the funder a guarantee fee proportional to the amount borrowed, eliminating mortgage registration costs and fees.
This means transaction costs are limited to an arrangement fee of less than 1% plus the cost of setting up the guarantee (1.5–2%). In some cases, you can get 75% of the latter fee reimbursed at the end of your mortgage.
This kind of mortgage is typically cheaper to set up, and can be beneficial for shorter loans because there are no penalties if you redeem a mortgage, unlike other options.
It is offered for both new and old properties – although a good credit rating and income are typically required – and it is only offered to residents of France.
A main organization specializing in these guarantees is Le Crédit Logement, but just look for the acronyms SACCEF and CNP to find other mutual lenders. Some major banks have their own guarantor: CAMCA (Crédit Agricole), CMH (Crédit Mutuel) and SOCAMI/SOPACEF (Banques Populaires).
France has an established mortgage industry and much experience in dealing with foreign buyers, although you may find fewer product variations than in other countries.
Interest-only loans are increasingly popular in France, and as buy-to-let mortgages aren’t really offered, this is popular for investors with the intent of renting their property out.
Since mortgage interest is deductible against rental income, this mortgage type can greatly reduce the monthly payments for the investor. In conjunction with the interest-only mortgage, the investor can also choose an annuity which pays off the loan principle at the fulfilment of the term.
Fixed-rate and variable-rate French mortgages
Borrowers can also choose between fixed-rate and variable-rate mortgages. Fixed-rate mortgages are often set at a higher rate, but do offer security.
One interesting fixed-rate mortgage product is the flexible mortgage. This product provides the security of a fixed interest rate, but allows borrowers to vary their monthly payments based on their individual circumstances.
Typically, the lender will set upper and lower payment limits, but in some cases payments can be suspended for up to two years, or increased as much as 30% for a more rapid payoff.
Rates for these kind of features can be higher, so you should opt for them if you think you’ll definitely use them.
Variable-rate mortgages in France are keyed to the three month or one year Euribor rates plus a 1–3% margin, so it can be difficult to get a transparent picture of long-term rates.
A popular variation on the variable-rate mortgage is the prêt à taux révisable non cape mais à échéances plafonnées. This product has a completely variable rate, but the borrower’s payments have an upper bound.
Though it is unlikely, it is theoretically possible that the borrower may inadvertently end up with an interest-only mortgage if the rates increase substantially.
Borrowers in France also have access to bridge loans, designed specifically for buyers who are ready to purchase property but are waiting for the sale of their existing property. Such loans are intended as short-term solutions, but can be extended for up to two years.
You can read more details about mortgages in France for expats.
There are three main forms of mortgage-related tax relief you can get when paying taxes in France.
One is the deductibility of mortgage interest on rental income. If you purchase a French property and rent it out for all or part of the year, your mortgage interest is considered to be a direct business expense against your rental income.
So, for French nationals and expats with a valid residency visa, the tax on property revenues is calculated on the rental income less the interest payments. For non-residents, however, the tax liability on rental income is reduced to 25% of that levied against residents.
French law also allows mortgage interest deductions against French inheritance tax, which can be a sizeable liability to those who inherit your property.
The inheritance tax laws are complex and highly situational. Speaking to a qualified tax advisor is advisable as a precursor to buying French property or taking out a French mortgage.
The third form of mortgage-related tax relief applies only to those subject to French wealth tax.
New wealth tax rules introduced in January 2018 mean that anyone with worldwide property worth €1.3m or more needs to pay an additional tax rate. Non residents only need to pay this on property in France.
The rates based on real estate value are as follows:
- €800,000–€1,300,000: 0.5%
- €1,300,000–€2,570,000: 0.7%
- €2,570,000–€5,000,000: 1%
- €5,000,000–€10,000,000: 1.25%
- €10,000,000+: 1.5%
Those eligible for the tax can offset the value of their main home by 30% if they’re living in it.