29 September 2020 - French Mortgage News | International Mortgage News | Partners News |
The money column – buy with a French mortgage and move in before Christmas
This article, written by our Managing Director Fiona Watts, first appeared in the September issue of French Property News – see it in its original form here
The summer may be coming to an end, but the French property market is still firing on all cylinders! Since the removal of quarantine for overseas travellers and the gradual easing of Covid-19 restrictions, enquiries to French estate agents from non-residents are continuing to rise and in-person viewing trips are taking place, with plenty more booked in over the next few months. From speaking to our clients and partners it seems that whilst some of it is a result of the pent up demand forced upon the industry by the coronavirus lockdowns, a not-insignificant proportion is due to people bringing forward their plans to purchase abroad because of two new drivers: the ever-looming Brexit Transition deadline of 31st Dec 2020 and the realisation that ‘working from home’ could mean ‘working from France’! For those who are looking to escape the city, France is a very attractive option – with almost twice the land area of the UK but roughly the same population and lower average house prices than in the UK, in France it is much easier to escape the crowds and get a lot more property for your budget.
No need to wait to sell in the UK first
Somewhat counterintuitively by purchasing with a French mortgage you can realise your dream of owning in France sooner than you think. Firstly, as you can borrow up to 85% of the purchase price, you don’t need to build up as large a personal contribution as if you were buying in cash. So, there’s no need to wait until you have sold your UK home – you can take out a French mortgage to purchase in France whilst maintaining an asset in the UK (Particularly useful for those who want to benefit from the low French mortgage rates that are available now, but don’t necessarily want to move over permanently just yet). Moreover, French mortgages come with no, or very low, early repayment penalties so if you do want to pay back your loan once your UK asset has sold, you can. Likewise, using a French mortgage can also increase your budget and could mean a difference between a holiday lock-up-and-leave apartment and a larger, more comfortable main home. French mortgage rates are still at very low (from 1 – 2.5% depending on the term) and you are able to fix them for up to 20 years. Which means those monthly payments are lower than expected, and your savings now only need to cover the deposit and fees, rather than the entire purchase price – so maybe you can afford something with a swimming pool after all.
A French mortgage can mitigate the exchange rate volatility
There are also benefits for those of you who were planning to buy in cash but put the dream on hold when the perfect storm of Brexit deadlines and coronavirus hit the exchange rate, making French property relatively more expensive than it was a couple of months previously. It won’t have escaped your notice that a property that is being sold for €400,000 would have cost you £341,880 in February when you could get €1.17 for every £1, but in July would have cost you an additional £22,000 as the pound fell to €1.10. If you purchase with a French mortgage, you can avoid ‘losing’ so much on the exchange rate as you don’t need to convert the full purchase price into Euros. Instead, by borrowing the maximum (85% of the purchase price) you can minimise your exposure to currency fluctuations. As mentioned above, with the low, or non-existent, early repayment penalties you could also choose to pay off the mortgage if, or when, the Pound strengthens which would have the result of reducing the original sterling purchase price.
For those would-be cash buyers, French mortgages will not only save you money but can make you money! French mortgage rates are low (from 1 – 2.5%) whilst a solid investment vehicle such as an ISA or managed share fund can return upwards of 5% per year. Therefore, rather than ploughing your cash into a property (that won’t realise a return until you sell it, as releasing equity after a purchase is nigh-on impossible in France) you can invest your sterling savings and enjoy a return each year, and purchase in France using a mortgage. It’s like having your cake and eating it!
A French Mortgage is not slower than buying in cash
If you are thinking of buying in France before the end of the year, then it really is worth starting to think about getting everything in order as a typical French purchase (whether you are a cash buyer or purchasing with a mortgage) will take around 3 months. This timeline is predominantly dictated by the various checks and searches that the notaires have to carry out. However, without some careful planning and organisation it can take a lot longer and that’s before you acknowledge the backlog of completions that were put on hold during the confinement. But there is a way to complete quickly, avoiding any lengthy negotiations, unnecessary delays and surprises and that is through using an experienced French Mortgage broker.
Always ask the experts – a French Mortgage broker
Firstly, speak to an experienced French mortgage broker to check that you would be eligible for a French mortgage and get an assessment of what your budget will be and the rates you could obtain. Then explore whether they can get you an official Approval in Principle – this is where you make a full application to the bank with all the necessary paperwork but before you have found the property you wish to purchase. This application goes to the underwriters and they will then issue an AIP stating that subject only to the property valuation they will grant you a mortgage. This will make any offer you make to the seller, once you have found a property you want to purchase, much more attractive and on a level with any cash buyer, who will still need to be able to show their proof of funds. It also means that once your purchase offer has been accepted, you can move quickly as the majority of the work on the mortgage has been completed already.
Using a French mortgage broker will also speed the process up in other ways. There are no non-resident French mortgage rates comparison resources, most banks don’t even publish their rates on their websites. The only way to scour the whole market would be for you to approach every bank individually, where you will often wait for weeks before you will get a response – or use an experienced broker that works with all the lenders who can do it for you. A 20-minute phone call to a broker should be enough for you to see the best deal available to you, and as long as you can get the paperwork to them promptly, they can be submitting an application within a couple of days.
The importance of the French mortgage broker’s banking relationships will also have a bearing on how quickly your purchase can complete. Some of our new and prospective clients who have contacted lenders directly have told us that they been receiving very mixed feedback in terms of the French banks’ appetite to lend and have reported long response times to their initial inquiries. This hasn’t prevented us from obtaining French mortgage approvals (as we have dedicated underwriters at the main French lenders who prioritise our files – last week we got an application submitted and approved within 6 working days!), having offers issued quickly even for large loan amounts of more than €1 million and, in some cases, on an interest-only basis.
Access to dedicated underwriters is also important because of the shifting lending criteria. These changes can be implemented with no prior warning and without direct access to underwriters, some potential buyers aren’t informed of their failed mortgage application until 3 months down the line. A good French mortgage broker will keep abreast of individual lenders criteria to ensure that there are no nasty surprises.
Finally, one of the biggest bonus of purchasing with a French mortgage, via a French mortgage broker is that you get a bi-lingual professional who is expert in the French property purchase process working purely on your behalf; fighting your corner, liaising with the lender, cajoling impossible-to-reach notaires, helping you open a bank account, source buildings insurance, keeping the immobilier informed and keeping the whole process on track. A French mortgage broker really should take away a lot of the administrative burden (and stress) of purchasing overseas.
Even if Covid-19 and Brexit deadlines may be our new reality, they don’t need to derail your dream of owning in France, especially if you consider purchasing with a French mortgage.
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