09 July 2012 - French Mortgage News | Partners News | Uncategorized |

French Mortgage Update

President Hollande’s planned tax increases, targeting wealthy individuals and non-resident second home owners of French property, have gained plenty of column inches since their announcement last week.

The British press in particular have been quick to highlight the rising costs associated with investing in France. However, the recent assertions in the media that international buyers will now turn away from the French market are still rather premature.

First and foremost, the changes still have to be voted through the French parliament. On two separate occasions over the last couple of years, proposed tax changes related to second home ownership devised by former president Nicolas Sarkozy and the Mayor of Paris have been dropped after being announced.

Regarding Hollande’s proposed tax amendments, the majority of market commentators believe that the changes to wealth tax and capital gains tax will indeed be voted through. However, the proposal to add social charges to the tax payable on rental income seems to be splitting opinion, with some sources suggesting that this may contravene EU law.
Potential investors who are unnerved by Hollande’s stance should bear in mind that the vast majority of international buyers retain ownership of their property for much longer than one presidential term. Growth in the economy will remain a priority for this and subsequent French governments, meaning that any long term tax changes that damage prospective investment in the country have a good chance of being reversed or watered down in the future.

More generally, it should be noted that France has never appealed to overseas investors as a low tax environment. The over whelming majority of international property buyers purchase because of France’s natural beauty and high quality of life, the latter which President Hollande is explicitly committed to preserve.

Caroline Cohen from the French Law Practice points out that, by having a French mortgage secured against your second home in France, it is still possible to reduce the property’s net value and mitigate the wealth tax payable. If you are renting out your second home, it is also possible to offset the interest on the mortgage against the rental income. Your taxable base thereby decreases, reducing the tax and social charges you will be liable to pay.

With this in mind, last week’s decision by the ECB to cut interest rates by 0.25% has come at a very opportune moment for international buyers. French mortgages should accordingly become cheaper in the coming weeks, while the result of current Euro weakness against both Sterling and the US dollar is that the cost of servicing a French mortgage is also falling.

Recent economic challenges have of course restricted access to credit all over Europe. But buyers should also remember that it is significantly more difficult to take money out against a French property that you already own, when compared with raising funds for the purchase itself – an important point to be aware of when deciding whether to finance the purchase in cash or with a French mortgage.

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