06 December 2018 - French Mortgage News | International Mortgage News | Partners News |
Don’t put your French property dreams on hold for Brexit, French mortgages can save the day!
Don’t delay your French property purchase because of Brexit
Purchasing a property can be stressful regardless of where and when you are buying, so it is understandable that any of you thinking of buying in France might be feeling a little hesitant now. However, let’s be clear; regardless of whether there is a deal or not, France is going to be just as lovely, the Alps will always be snow-covered, and the sun is still going to shine on the Cote D’Azur. Which means your desire to have a foothold in the country is not going to diminish. So, what is really holding you back? Because if it’s some worries about whether it’s a safe investment, purchasing with a French mortgage should be the reassurance you need. It hardly seems right that you must put your dreams on hold while the politicians battle it out for, what could be, months or years.
A French mortgage can make the exchange rate work in your favour
Fortunately, a French mortgage can save you from the nightmare of waiting it out and can protect your investment. Firstly, it can mitigate the exchange rate volatility. In periods of uncertainty, the exchange rate can fluctuate quite dramatically: over the past year, depending on when you converted your sterling, the real cost of a €500k alpine retreat would have been as low as £431k or as high as £454k – a difference of £23k ‘lost’ due to the exchange rate. However, if you purchase with a French mortgage at an 85% loan-to-value, you would only need to transfer the balance of the purchase price. In the above example you would only need to transfer €75k which would mean that the maximum variation that you would lose to the exchange rate was £8k! An added bonus, is that it is possible to borrow in France for up to 25 years at a fixed rate or capped rate of interest (rates for 25 years start at 1.48%) but the early repayment charges, (unlike in the UK) are low (typically just 6 months’ worth of interest*). So, should the exchange rate return in sterling’s favour at any point in that time you can pay off the whole mortgage and even ‘save’ money on the original sterling purchase price! (*this would be a total of €1,676 based on a loan of €425k at 1.48%)
Invest wisely and a French mortgage makes you money!
Additionally, borrowing against your French property at a high LTV, means that you aren’t tying up your sterling savings in a French property, where they aren’t earning any interest. Instead you could invest them, even cautious investors can expect around a 4% return p.a. Bear in mind that French mortgage rates are very low (from 1.35% fixed for 15 years at 85% LTV!), so the return on investment greatly outweighs any interest on the French loan.
Unlike in the UK, re-mortgaging or releasing equity on a property you own in France is notoriously hard. And if you own it outright (i.e. buy it in cash) it is impossible (unless who have bought it in the past 12 months or the property is worth over €5M). This means that by buying in cash you are locking in all of that investment until you sell the property. There can’t be many things more frustrating than to be forced to sell your French home even if you only need a small proportion of your investment back. By taking out a French mortgage, this scenario is prevented, as you can keep your cash liquid, or invest it in vehicles where you can get access to some or all of it should it become required in the future.
Assets and debts work best in the same currency
Perhaps more importantly with the current uncertainty, is that it is more prudent to maintain your asset (French property) in the same currency as the debt. This is important to bear in mind if you were considering releasing equity on any UK property you own, rather than taking out a French mortgage. For example; if you purchase a property in France worth €250k and you have 15% deposit you will need to raise another €212,800 (or £190k based on an exchange rate of £1/€1.12). The issue arises when it comes to paying off the £190k debt, every month or in full. If you are using the rental income from the French property or come to sell the French property you will need to convert the Euro’s back into Sterling. Current predictions are that sterling may well reach £1/€1.35 over the next 5 – 10 years. Which would mean that you would need to convert €256,500 to pay off £190k. So, you need to be very certain that the price of your French property is going to increase at a higher rate than the exchange rate recovers, otherwise you risk that your Euro asset will not be worth enough to pay off the Sterling debt. If you borrow in Euros with a French mortgage however, you are completely protected against this scenario. Also bear in mind that you can get up to 85% LTV with a French mortgage, but if you are releasing equity on a UK property you may not be able to borrow more than 35%. And you certainly won’t be getting rates anywhere near as low as in France (UK mortgage rates start at around 2% and are only increasing while lifetime equity release loans start at 4%) nor will you be able to fix them for the term of the mortgage.
Brexit might be causing a lot of head-scratching in Parliament, but it need not become a headache for you and your dream of owning your own piece of France. At IPF we talk to the Head of Consumer Lending at all the main retail banks on a weekly basis and their appetite to lend to non-residents remains undiminished. They already have procedures to lend to both EU and non-EU residents and do not see a scenario where that is going to change. To receive your own personalised mortgage illustration, please get in contact as we would love to be the ones to help make your dream a reality…and in time for Christmas too!
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