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We were delighted to feature in the Money section of The Telegraph on Saturday 2nd February 2022. In a great article - 'How to buy a piece of your own vie en rose', reporting that British buyers are back are raring to purchase in France.
This article, written by our Managing Director Fiona Watts, first appeared in the October 2021 issue of French Property News.
WHAT HAPPENS IF YOU GO INTO NEGATIVE EQUITY?
Q. Due to the pandemic, my friend finds herself in negative equity on her property in Nice. If the bank were to repossess, would they look to her for repayment of the difference between the outstanding mortgage and the sale price?
Fiona Watts of International Private Finance, specialist brokers of French Mortgages for non-residents replies:
A. Unfortunately there is no cut and dry answer to this as the banks don't have hard and fast rules, it seems.
Falling into negative equity had thankfully become a lot rarer in more recent times due to a general uptick in house prices and the requirements to put down a lager deposit before borrowing, but the pandemic has dramatically changed many people's financial situation in a very short timeframe. It is very likely that the bank would ask your friend to make up the difference between the outstanding mortgage and the sale price. After all, ultimately the bank does not want to find itself out of pocket, and will require the loss to remain with their client, your friend.
Many banks will wait until the property is sold rather than losing their valuation so if the property does sell for more then the guide price (which can happen, particularly if it is sold at auction) the bank will only ask for the shortfall.
With regards to your friend's position, the only way to be certain as to how her mortgage provider will act in her case would be to ask their after-sales department directly. Every bank will have different policies and these aren't always set in stone or followed 100% of the time.
This article, written by our Managing Director Fiona Watts, first appeared in the August 2021 Issue of French Property News
WILL FRENCH BANKS DO CREDIT CHECKS ON US?
Q. What checks do the French banks carry out when assessing a mortgage application for non residents? Do they have access to UK credit reports?
Fiona Watts of Anglophone French mortgage brokers International Private Finance, replies:
A. As an overseas resident buying in France, the French lenders (based on their analysis of past borrowers) view you as having a much higher chance of defaulting on your mortgage than that of a French resident. Therefore their criteria for lending to non-residents and the checks they carry out when assessing your mortgage application can feel more obtrusive and forensic than anything you may have been used to when purchasing in the UK.
To understand your credit worthiness, the French lenders will:
Be aware that if you regularly reach your overdraft limit or have taken advantage of any mortgage 'holiday' over the course of the pandemic, this will have a negative impact on your application.
Most lenders will also run a series of checks with other agencies. Most use Experian and will require a basic Experian check (though not an in-depth report) on individuals, as well as a business report and a check of Companies House for those who are self-employed or directors of a limited company. They will also do a domestic check with the French tax authorities to verify you have not been 'blacklisted' by another French lender.
The paperwork required to 'prove' your credit worthiness can feel extensive, and may require a lot of to-ing and fro-ing with the bank, who often have a limited grasp of English. Using an experienced, FCA-regulated and bilingual French mortgage broker, that specialises in non-resident mortgages, is a worthwhile investment as they will undoubtedly save you time, have access to discounted rates and fees and ensure you have the best change of getting your application approved.
This article, written by our Managing Director Fiona Watts, first appeared in the July 2021 issue of French Property News.
Fiona Watts explains how mortgages work differently in France, largely in the best interest of buyers.
While the terms used to describe French mortgages seem very familiar to anyone used to borrowing in the UK, it is important to note that there are several key differences in how a French mortgage and the products on offer to a non-resident work in practice. And since it is extremely difficult to re-mortgage in France, there’s an added pressure to ensure you select the best product for you now and in the future, at the point of purchase. Here’s a handy guide to the different French Mortgage products on offer to anyone looking to purchase from abroad.
Repayment vs Interest only
Just like in the UK, French mortgages are offered on both a capital repayment (where you pay both the interest and a portion of the original loan amount back each month, so at the end of the term the debt is cleared) and interest-only basis (where you only pay the interest on the loan, and at the end of the term you still need to repay the original loan amount). Most non-resident mortgages are offered on a capital repayment basis. Interest-only ones are offered to non-residents by a very small number of lenders, and borrowers need to satisfy more stringent affordability criteria around the level of existing debt and the value of liquid assets to obtain them.
If you are considering an interest only product, be aware that the maximum term is typically 14 years, and that it is not possible to re-finance your property at the end of the term so the loan will need to be paid off in full at that time. Moreover, the loan-to-value (LTV) is also lower on interest-only products: 75% compared to 85% on a capital repayment product. Despite this, interest-only products remain popular as the monthly payments are significantly lower, and over the past few years French lenders have also introduced a few hybrid products. These allow you to either have the first few years on interest-only before ‘converting’ to a repayment product (useful if you know your monthly outgoings will reduce in a few years, e.g. no more school fees) or putting half your loan amount on interest-only and half on repayment.
Fixed vs Variable
Again, as in the UK, there are fixed, variable and capped French mortgage rates. But the similarities really end with the names. In the UK it is typical to get a fixed rate for two to five years, but much rarer to get a rate that would be fixed for any longer. Once the fixed rate period expires, in the UK you would automatically be moved onto the standard variable rate of the lender, but in practice you would refinance the loan onto a different product for more preferential rate (usually paying a hefty bank arrangement fee each time for the privilege). In France you can fix for up to 25 years! As rates are very low at the moment (around 2%) a fixed rate can be a very attractive proposition, giving the borrower piece of mind that the euro monthly payments would remain the same for the lifetime of the loan. Variable rates in France usually track the Euribor, and (as the Euribor is currently a negative number) are also very low.
However, if the Euribor goes up, your mortgage interest rate will also increase. But if it decreases then you will see the benefit in a lower interest rate. When this happens in the UK, the amount you pay for your mortgage each month will fluctuate, which can be unsettling for some. However, in France, when the rate changes, rather than change the amount you will pay each month, the lenders will instead adjust the term of the mortgage. They believe borrowers would prefer the certainty of knowing that the monthly payment will not change over time and so instead will increase or decrease the total number of monthly payments you will need to make.
Another ‘safety feature’ that is more common in France is a capped product – it’s a variable rate product that for a certain number of years (or in some cases the full term) will have a limit (or cap) on how much the rate can increase, regardless of what happens to the Euribor. The cap is typically 1% or 2% above the initial rate.
Early repayment charges
Another key difference between how French and UK mortgage products work is around the use and severity of early redemption charges (ERCs - an additional charge levied by the bank should you wish to pay back some or all of the mortgage early). In the UK, ERCs are attached to almost every mortgage product, and are often very high (typically between 3-5% of the total loan amount). In France, by contrast, many variable and capped products do not have any ERCs and those attached to a fixed rate product would only be around six months’ worth of interest on the amount you were redeeming. Based on a 250,000 loan it would cost 12,500 to pay that back early in the UK, but only 2,500 in France!
This gives borrowers on the Continent a lot more flexibility to make over payments or pay back the total mortgage early without incurring huge costs. It can be particularly beneficial for those purchasers who chose to take out a French mortgage to reduce the amount of sterling they would need to convert into Euros at the point of purchase. If the exchange rate becomes more favourable, they can then repay the mortgage early – in effect reducing the overall sterling cost of the French property.
As alluded to above, the re-finance and equity release market in France is essentially non-existent. If you have purchased your French property in cash, it will be very difficult to obtain a mortgage on it at a later date and extract the equity you have in the house unless you sell it. French banks will only allow you to change products or lenders or increase the loan amount (release equity) in a very limited set of circumstances (usually only if you are looking to purchase another property in France or the UK). It is also a very expensive transaction as you are required to engage a notaire and pay all those legal fees again. In practice this means the rate you are moving onto needs to be at least three percentage points lower than your current rate for you to obtain any financial benefit over the term of the loan. It is very important therefore that you assess your current and likely future financial circumstances at the point of purchase to ensure that you do choose the most suitable product for you. We would very strongly advise that you take financial advice from an FCA and a specialist French mortgage broker qualified by ORIAS (French regulatory body) before committing to any product. They will also have the benefit of having access to exclusive rates and discounts on bank arrangement fees due to the volume of business they do with the banks.
Finally, it is also imperative that you get a clear explanation as to what other conditions are attached to the mortgage product. In the UK it is no longer common to be required by the lender to purchase any other of their financial products in order to access the mortgage. However, this is not the case in France. The majority of banks will require to you open a French bank account with the lender, purchase a life insurance policy from their approved provider (which is always more expensive than a UK policy). Regardless of the level of cover you already have, they will usually require you to keep an (often sizeable) euro deposit in the bank’s savings vehicle and lodge funds to be managed by the bank. A general rule of thumb is the lower the rate (especially any that are less than 2%), the more likely there will be ‘strings’ attached. In practice, these additional products can add up to 1.5% to the headline mortgage rate, so do be aware that the lowest rate may not, in fact, be the cheapest deal.
There really are a myriad of benefits to purchasing with a French mortgage, to not lock up your cash savings in a property and investing them into a higher return investment vehicle instead, increasing your total purchase budget or reducing the level of sterling you need to exchange into euros at an unfavourable exchange rate. And there are some genuinely great deals on the market.
Fiona Watts is the co-founder and Managing Director of International Private Finance Tel: 0207 484 4600 internationalprivatefinance.com
We did it! The British Bank Awards is an annual campaign to find the best products, hottest innovation and most trusted financial brands and partners. Now in their sixth year, the results of the British Bank Awards 2020 are based on the feedback received from over 40,000 customers. Voting in the British Bank Awards 2020 started on 4th November 2019 and ended on 9th February 2020 and we were so proud to be named the winner of the Best Specialist Mortgage Broker category at the awards ceremony held in London on Thursday 12th March
Thank you to all our wonderful clients who voted for us. We literally couldn’t have won without you!! We are so proud to be named Best Specialist Mortgage Provider in the British Bank Awards 2020. And thank you to the whole IPF team and extended family - the reason our clients value us so much is because of our wonderful team.
From L-R: Simon Smallwood, Nikki Carlisle, Felicity Sullivan, Fiona Watts, Mark Dolan (Host)
This article, written by our Managing Director Fiona Watts, first appeared in the September issue of French Property News.
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.
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.
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!
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.
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.
We were very excited to be mentioned in a feature in the Sunday Times Home section last Sunday (21st June 2020). The article talked about the exciting reinvigoration of the French property market as the easing of the lockdown continues in both France and the UK. Estate agents are recording high levels of new enquiries from both UK and French city-dwellers, driven by the desire to have more space, a more rural setting but also (in the case of us Brits) a foothold in the EU before the Brexit transition period deadline hits at the end of the year.
IPF was mentioned and quoted towards the end of the article as we highlighted that those looking to purchase this year would be sensible to get their finances in order and a French mortgage offer issued as soon as possible as French mortgage rates are likely to rise in the short-to-medium term.
We are so chuffed as we have been named as a finalist in the British Bank Awards 2020 in the Best Specialist Mortgage Broker category. The best bit? The fact that these awards are voted for by customers and this year over 21,000 members of the public have had their say! So thank you to all our clients who have taken the time to vote for us! Voting has now closed, so all we can do now is wait until March 12th, dig out our glad rags and keep our fingers crossed that we're up on stage collecting the award on the night!
More information on the awards can be found here: https://buff.ly/3ajAs9B
French mortgages featured in The Sunday Times Home section this weekend (29th September). The article discussed what the average UK house price (£233k / €263k) could buy you on the Continent. France was (obviously) top of the list and our good friends at Living France / French Property News had some great options for under €500k. Their editor, Karen Tait, rightly sung the praises of a French bolthole, where you can buy a property with a swimming pool, period features, large gardens for the price of a 2 - bed semi. She also made some great points on the benefits of purchasing with a French mortgage - in fact, we couldn't have said it better ourselves.
On the French mortgage front, the article mentioned:
We'd add that once you've decided to purchase in France, it's always prudent to speak to an expert about your finances before committing. We've written a couple of articles about the importance of using a French mortgage broker and how to choose the best one.
To read the full French mortgages in The Sunday Times article, click here and to get in touch for your no-obligation, free personalised quote, please fill in our online form and one of our Consultants will be in touch.
On Thursday 26th October, IPF's Felicity Sullivan chatted to UK Health Radio's Matt Turner about how French mortgages can help you purchase your dream property in France.