Buying in Paris
There can be few ideas more romantic than that of buying a property in Paris, but it can be tricky
1 Dec 2023
There can be few ideas more romantic than that of buying a property in Paris, but it can be tricky
1 Dec 2023
There can be few ideas more romantic than that of buying a property in Paris. The City of Lights remains one of the most visited tourist destinations in the world, due to its intoxicating mix of historical monuments, award-winning cuisine and picturesque architecture. It is not surprising, therefore, to hear that it is also the home to an exceptionally competitive property market. As a result, the range of French mortgages for property in Paris available to international property buyers is equally large and an example of what is on offer can be viewed in our French mortgage latest rates table here.
Demand is so high, in fact, that potential buyers must be prepared to think and act fast in order to secure a property. Unlike, say, the sprawling and ever-expanding metropolis of London, central Paris covers a relatively limited area of land, whose boundaries are marked by the périphérique ring road. Within these limits, buyers can choose from properties in one of twenty districts – or arrondissements. Regulations on property development in the arrondissements are extremely rigid, meaning that there can only ever be a certain amount of properties available on the market for potential buyers.
Such competition evidently puts sellers in a very strong position. The appearance of an attractive property on the market in Paris will invariably be followed by an immediate surge of interest over the following day or two. Sellers are often inundated by offers, which puts them in the position to select not just on the quantity (purchase price offered) but the quality (financial strength) of the proposals that have been tabled.
This means that buyers need to act quickly and efficiently at every step of the process. And where better to start than the financing. A seller is unlikely to seriously consider an offer from a buyer who has not already secured a mortgage in principle with a reputable lender. You should apply for this approval well in advance of your property search, and then request official written confirmation of it from the bank. This document can then be submitted to the vendor along with your offer.
Investing in a property in Paris is generally considered to be a safe bet financially and, as such, a wide range of banks offer mortgages for purchases in the city. This includes private banking institutions, as well as high street retail lenders. It is worthwhile considering your options carefully: an international private bank may be able to offer you a more flexible credit product for your new purchase, but bear in mind that such a lender may also require you to enter into a wider banking relationship, as part of the deal.
French lenders are well aware of the interest in Parisian property among buyers from all over the world, and in particular from the USA. American buyers should check the lending criteria at each bank carefully, as some banks impose restrictions with respect to the mortgages they can offer US citizens. The same generally goes for all nationalities outside the European Union. In each case, the retail banks are most receptive to applicants who are fully employed (ideally with a multinational corporation) and able to provide full disclosure and comprehensive documentation to illustrate their financial situation.
At this point, it is common in France to insert a clause suspensive into the purchase contract relating to the mortgage. This clause dictates that you are free to walk away from the purchase if, for whatever reason, the mortgage falls through.
However, and again due to the competitive nature of the property market in Paris, some sellers may prefer to proceed without the uncertainty of such a clause. You may therefore wish to think about proposing a purchase contract that does not include a clause suspensive, in order to appear a more attractive prospect to the seller. Before you do so, you should firstly check with the mortgage lender whether there is any reason why your mortgage could fall through.
The main reason that the bank may withdraw their offer of financing is due to their valuation on the property coming back lower than expected. However, due to the strength of the property market in Paris, properties there are unlikely to be under-valued by the banks. This means that you should be able to leave out the clause suspensive without too much concern. But do bear in mind that most buildings in the arrondissements are relatively old. You should have any potential purchase checked out first in order to verify that it does not suffer from any outstanding structural or administrative issues.
Finally, if you are intending to let your property out, it is worth bearing in mind that buy-to-let mortgages do not exist in Paris as they do in many other markets, such as in the UK. You will have to prove that your can comfortably afford the repayments on your new mortgage, regardless of the potential income that you will earn from letting the property out. Should you ultimately succeed in finding tenants for your property, however, the good news is that you can deduct the mortgage interest from your rental income in order to limit your exposure to French income tax.
Important points to consider:
Here are a number of factors to consider if you are thinking of using a French mortgage or finance facility to purchase a property in Paris.
1. Act early. Ensure that you have secured an agreement in principle before you start your property search, as sellers will consider your offers on the basis of their financial strength.
2. As well as acting early, be sure to time your application for the agreement in principle. More so than in rural French holiday destinations, Paris calms down significantly in the month of August. You do not want to receive your pre-approval just as all the potential buyers head off for their holidays! The market is at its strongest from mid-September to early December and from late February to the end of June.
3. Try to consider mortgage products from a range of different banks, both local and national, retail and private. If you live and work outside the European Union, be prepared to provide full disclosure regarding your personal finances.
4. Provided that you are comfortable with the strength of your mortgage application and the value of the property that you wish to purchase, consider omitting the cause suspensive relating to mortgage financing. The buyer may look more favourably upon your offer as a result.
5. There can be financial planning benefits to having a French mortgage secured against your property. A professional tax consultant will be able to outline the benefits with respect to wealth tax and offsetting rental income against mortgage interest (should you intend to let out your property).
1 Dec 2023
