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Differences between UK Mortgages and French Mortgages
Don’t get caught out when buying in France - French mortgage products may have familiar sounding names, but they can work in very different ways to what you may be used to.
26 Aug 2022
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This article, written by our Managing Director Fiona Watts, first appeared in the June 2019 edition of French Property News
Bite-Sized French Mortgages
French mortgages are a bit like French food – the ingredients are similar to those in the UK but the result is oh so very French! To celebrate FPN’s 30th anniversary, Fiona Watts runs through 30 bite-sized ways in which mortgages differ in France and the UK.
In France you can fix the interest rate for the life of the loan i.e. a rate of less than 2% for 20 years. Giving you peace of mind that the rate won’t ever change
Selecting the right mortgage is critical, as unlike the UK you cannot refinance in 2-3 years’ time (In France, refinancing is so expensive it negates any benefit of a lower rate)
The rates are significantly lower – currently you can get a rate fixed for 10 years at 1.15%!
The bank fees may be closer to 1% of the loan amount (often capped at €3,000 or below) so initially seem higher than the UK standard £599, but you are only paying them once over the lifetime of the loan!
Life insurance is generally a requirement of the mortgage, and most lenders insist on you taking out French life cover
You can take out a French mortgage even after you have retired
Your interest rate is not secured until the mortgage offer is issued, until then it is subject to change
A valuation is not standard, and even when carried out, unlike in the UK, you are not provided a copy of the report or even told the result, but it is normally a cost covered by the bank
A French bank will expect you to buy with your spouse if you are married
Interest-only French mortgage products although available are not common, and are only for a maximum of 15 years
Many lenders will ask you to hold a cash sum with them for the life of the loan, or to invest money with them
Early repayment charges are far less than we are used to in the UK, with the maximum penalty being 6 months’ worth of mortgage interest on the amount you are repaying.
When making an overpayment in France you are normally required to pay off a minimum of 10% of the initial loan amount
You will be required to open a Euro account in France, but not always with the bank you obtain the mortgage from
Often French banks will not accept applications until a property has been found and a sales contract signed, but a good international broker will be able to give you a very clear indication as to the likelihood of a successful mortgage application
For an off plan property the bank requires you to put in all of your money first and then the mortgage funds will be released directly to the builder in line with the stages agreed in the reservation contract i.e. if you take a 60% mortgage the mortgage will only be used after you have paid 40%, it will not be a case of you paying 40% and the bank paying 60% at each stage.
Most French banks offer an “AIP” (approval in principle) but it is no more than a quote In France, it is not a guarantee of an approval unless you have submitted all your paperwork and an underwriter at the bank has looked at your file.
The documentation you will need to provide will be far more extensive, it’s not just 3 months of payslips like in the UK!
The level of information needed surrounding that documentation will be of a much greater detail – the source of your funds is very important in France and they are rigorous in their analysis of it.
If you are buying in your sole name but are in a relationship the banks will often require information on your partner even if you are not married to ensure they don’t have debts that you would feel duty bound to pay in the case of default
An obvious one – but the banks rarely employ native English speakers, and when they do they are generally on the sales side and not available for any post-completion support
Once you receive your mortgage offer in France you have to respect the legal 11-day cooling-off period before you are able to accept and return it.
Once you have bought the property it is virtually impossible to raise additional funds against it in the future, so think carefully about the LTV you take out – as a non-resident you can borrow up to 85% without any need to place further assets with the bank.
You cannot borrow the completion costs payable to the Notaire – approximately 7.5% for a resale property and 3% for an off-plan property
The amount you can borrow is calculated using a debt to income ratio rather than income multiples. In France the banks generally allow you a third of your income to be taken up by debt and your new French mortgage i.e. if you earn £3,000 a month, a £1,000 can be used for your UK mortgage, personal loans, car finance etc as well as the new French mortgage
The number of banks able to lend to non-residents is far less extensive than the options you would have when buying a second home here in the UK.
Once the bank has refused your file, it is virtually impossible for that decision to be changed, even if your circumstances have altered.
The mortgage products are different to those available in the UK, such as the possibility of having the initial period of the term on an interest-only basis
BTL mortgages do not exist and the mortgage will be calculated on your ability to service the mortgage through existing income rather than potential rental income…
…But there is no restriction on you renting the property out, so once you own the property you can let it out on a seasonal or full-time basis (which can often cover the monthly mortgage payments and more!)
If all these differences seem a lot to get your head around, then do not worry. A good FCA-regulated internal mortgage broker will be able to guide you through every step of your mortgage application and liaise with all the parties involved in the purchase transaction through to completion. So, take advantage of the low rates and the ability to fix for the lifetime of the loan and secure yourself a little place of your own where you can spend the next 30 years enjoying all the delights that France has to offer!
