Quick Guides to French Mortgages : The Differences between French Mortgages and UK Mortgages
In 2015, 35% of Britons looking to purchase abroad veered their focus towards France. Our ever-growing love for the Hexagon teamed with the strength of the Pound and rock-bottom interest rates has meant more and more people are choosing to buy in France. As in the UK, in order to secure a property it may be necessary to raise finance. Although the process is broadly similar on both sides of the Channel, there are some key differences to be aware of.
Who can you borrow from?
It is not possible to secure a mortgage against a French property with a bank in the UK. Only French financial institutions are able to register mortgages to French real estate, meaning that any mortgage you do take out will be in Euros. This can be extremely beneficial as it removes the potential risk of the property falling into negative equity due to a change in the exchange rates. If the Pound were to increase in strength, it could mean that the UK debt would exceed the value of the French property. Borrowing in Euros means that the level of debt held against the property will remain parallel to its value no matter what happens on the unpredictable foreign exchange market.
How do you qualify?
In order to qualify for French mortgages, potential borrowers are required to meet certain conditions as stipulated by the lending institutions. Rather than using income multiples, French banks base their lending criteria on monthly income and outgoings. In order to qualify, your level of contractual debt- current mortgages, rent, consumer credit and the payments on the potential future French mortgage- should not exceed a third of your income.
For example, if you have current mortgage repayments of £800 and the French mortgage has monthly payments of £500, your total monthly debt would be £1,300. Assuming you have no other contractual debt, this would mean that your monthly income must be at least £3,900 in order to qualify for the French mortgage.
The buyer’s borrowing capability is not affected by the amount of deposit, although the borrower will need to show they have sufficient funds to go ahead with the sale. The minimum deposit for a purchase in France is 15% and the banks will not lend against the solicitor fees. These legal fees are usually around 7.5% of the purchase price and are payable on completion with the Notaire. The banks will also ask for proof of a certain level of savings once the deposit and Notaire’s fees have been paid, often asking for between 12-24 months’ worth of mortgage repayments.
What is involved in the process?
The French banks are rather cautious when lending to non-resident borrowers. The application process is fairly paperwork heavy, even in comparison to applying for a mortgage in the UK. Potential borrowers are required to provide proof of income and would also need to provide proof of any outgoings they may have. As it can be difficult to obtain finance in France, there are processes in place to protect the buyer. Once the initial 10% deposit is paid, there is a 10- day cooling off period during which the buyer can pull out of the purchase at any time and their deposit is returned. There should also be a clause in the sales contract that states that if for any reason the buyer is denied funding by the bank, they can again pull out of the sale without losing their deposit.
What mortgage products are available?
French lenders offer both repayment and interest only mortgages and they have very attractive fixed rate products. As of January 2016, you can fix your mortgage rate at 3.25% for 20 years. Unlike in the UK where it is normal to shop around every few years, in France you can benefit from the current low rates for the lifetime of the mortgage.
When can I start the process?
It is always easier to apply for a mortgage at the time of sale. Post-finance and equity release mortgages can be a lot more expensive and complex to arrange, so it is best to borrow the capital upfront. With certain banks it is possible to apply for a mortgage before even finding a property. This puts the buyer in a strong position and makes the process a little quicker once the perfect property is found!