French Mortgages and the (lack) of equity release
It’s almost impossible to release equity from a French property once you have bought it, but a French mortgage will ensure our savings remain accessible for a rainy day
1 Sep 2020
It’s almost impossible to release equity from a French property once you have bought it, but a French mortgage will ensure our savings remain accessible for a rainy day
1 Sep 2020
Unlike in the UK where it is typical to refinance a property every few years to benefit from improved rates, in France it is surprisingly uncommon. Once a lender and a product have been chosen, it is normal to stick with them for the duration of the loan.
This habit is reflected in the lack of refinance products available on the domestic market and the fact that lenders offer separate, higher rates for clients looking to refinance. A fixed rate product over 20 years goes from 2.55% up to 2.85% for its refinance equivalent. This increase comes paired with a maximum loan to value reduced from 85% down to 75%.
Higher rates are not the only thing that makes refinancing an expensive venture in France. In order to go through with a refinance, you would be required to pay total costs of around 3 – 5% of the loan amount. You may have early redemption penalties when paying off your current mortgage and you will be asked to pay the new lender an arrangement fee for setting up the new mortgage in addition to the Notaire’s fees for the new French mortgage. Often you can find that the better rate achieved from changing onto a different lender does not outweigh the total cost of the transaction.
This aversion to re-mortgaging in France comes from the idea that clients want to do so because they are in financial difficulty. For this reason it is currently impossible to refinance from an interest only product to a new interest only product. Lenders require that you are able to prove that the new mortgage will be financially beneficial before they will agree to go forward. Of course, there are situations where this would be the case. If you are interested in refinancing a property in France, please take a look at our Re-mortgage Calculator to get a better idea of the costs involved.
1 Sep 2020
