28 June 2018 - French Mortgage News | International Mortgage News | Partners News |

The difference between an Agreement in Principal and an Approval in Principle; and how, for non-residents, only one counts.

The difference between an Agreement in Principal and an Approval in Principle; and how, for non-residents, only one counts.

As the summer season heats up, so does the competition for the prime properties in France. To give your bid the best chance of being accepted, you need to make sure that not only is the price right, but also that you can move in line with the vendor’s timeline and that your offer is realistic. By this we mean you can prove that you do have the necessary funds to purchase the property. We have heard that during this busy season many estate agents are refusing to do viewings unless they have seen your ‘proof of funds’ (including proof any necessary mortgage funds have been approved). This is why vendors can seem to prefer cash buyers – as the perception is they can move more quickly and they have the funds readily available and aren’t dependant on a mortgage. However, after the sharp decline in the strength of the Sterling after the Brexit referendum and the historically low French mortgage rates (from 1.24%), our savvy clients have realised that it is more prudent to take out a Euro mortgage – it keeps their savings liquid (as it is virtually impossible to release equity on a French property) and gives them the option to pay down the debt at a later stage if the exchange rate returns in Sterling’s favour. And this is where an Approval in Principle (Approval) can really help.

An Approval is not something that is available in the UK market. It is specific to France (and as we explain later, specific to IPF) where the underwriters at the bank have looked at all of your paperwork, checked your financial situation and said that subject only to you finding a suitable property they will grant you a mortgage. They will specify the maximum amount they will grant you and may put conditions around the type of property you can secure the mortgage against. The Approval doesn’t have a time limit, so you can apply for one at any point in your property search (although you may have to submit updated bank statements depending on how much time does lapse between the approval and you finding the right property). The whole process can take between 2-3 weeks, but once you have obtained the approval, it also means that you can shave 2-3 weeks off the time it will take to get your legal mortgage offer and complete on your purchase. Which is why you’re then on an even footing with any cash buyer. Read our article here about the benefits of an Approval in Principle

The important thing to be aware of is that an Approval is materially different to an Agreement in principle (AIP), (sometimes known as a Decision in principle (DIP) or a Pre-approval). In France and in the UK, obtaining an AIP is very straightforward. It is essentially a certificate (or in some cases an email) that you can receive from a bank after your initial phone call with the sales team (or in the UK you can often apply to the main high street banks online, who will also do a credit check). In France, the banks will offer you an AIP once they have asked questions about your income and outgoings and they will state that based on that information you should be eligible for a mortgage with that lender. They may also tell you what the maximum loan size could be. However, whilst this will give you an indication of what you may be eligible for, it is NOT a guarantee[1], despite what they may tell you. (Remember, these are the banks’ sales teams, they do not have any mortgage qualifications and are targeted on getting potential clients onto their system, not on how many mortgage offers are issued). That guarantee can only come once you have submitted all the paperwork required (not just your payslips and tax returns, but proof of all other contractual debt and regular incomings, identity documents and bank statements), and an underwriter has analysed and approved your file. The sad fact (as many of our clients found out prior to coming to us) is that in France the only half of the non-resident buyers who have obtained an AIP direct from the banks go on to have a mortgage application approved and a mortgage offer issued. (In comparison, 97% of our clients have a mortgage application approved and a mortgage offer issued). You could say that their AIP tells you no more than what you would find out from using a simple mortgage calculator.  Unfortunately for many clients who, on the basis on the AIP, go onto make a full application, the mortgage refusal is not then issued until many more weeks (sometimes months) down the line, which can then ruin their chances of completing in line with the dates in the compromis de vente, and in many cases, results in losing the property altogether.

The reality is, should you approach a bank directly to apply for a mortgage that is not in relation to a specific property, you will not be able to get an Approval, merely an AIP which as we mentioned above is not worth the paper it is written on. As far as we are aware, we have not heard of any client being able to get an Approval except through us. As the top introducer to the main French banks who lend to non-residents, we have dedicated underwriters who only work on our files and an exclusive arrangement which allows only our clients to obtain an Approval before signing a compromis or making an offer.

So, if you are off on a viewing trip soon and are interested in looking into whether a French mortgage would work for you please do give us a call on 0207 484 4600 or fill in our online form and we will get in touch.

Further reading

[1] Please note that in the UK, for a repayment mortgage on a UK property, an AIP is a more certain indicator of success, and typically if your paperwork matches what you have told the bank/broker, your mortgage will be approved on receipt of your full application

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