Mortgages:

French Mortgages: Seeking a little more
“joie” in your “vivre”?

In recent years there has been a boom in overseas property ownership with more and more people taking advantage of favourable exchange rates coupled with lower property prices abroad. No longer happy with a traditional two-week vacation in the sun there are lots of Brits that make their holiday a little more permanent.

The French property market is extremely popular with UK buyers and prices have started to rise. Rural property remains good value and depending on what you are after you may be able to pick up a bargain. If you are looking for a coastal or city property then prices are much higher, with Paris being one of the most expensive cities in Europe for property purchase

So whether you fancy a world of gastronomic delights and fine wines or want then France has always been a popular destination. If it’s a permanent move or a weekend bolthole you are looking for, there’s plenty on offer. 63% of the current overseas property market is bought by UK buyers searching for their dream in France. France remains the most popular destination for a second home or permanent change of lifestyle and more recently as an investment opportunity, where increasing numbers of UK property investors are hopping over the Channel to pick up buy to let bargains, known as ‘leasebacks’ in France.

Financing your dream

Kent based New Mortgage Finder specialises in overseas mortgages in 6 European countries, which include France, Spain, Portugal, Italy, Bulgaria and are registered in the UK to provide a full financial advice service on all mortgage needs.  With over 18 years experience within the financial services industry, New Mortgage Finder supplies comprehensive customer focused advice and services to ensure that you are placed in an informed position to make informed decisions.

 Steve Morgan, Sales and Development Manager for New Mortgage Finder says, “Even if you think you are fluent in the language or finance you will need a combination of both to secure the right overseas mortgage for you.  As Mark Twain once said, ‘In Paris they simply stared at me when I spoke French, I never did succeed in making those idiots understand their own language’.  Talking finance in France could be a subject too far and even in English this can sound like double Dutch, especially if you go for a discounted, fixed, variable rate tracker!”  Steve Morgan goes on to say  “there is a language barrier, especially when it comes to technical issues surrounding French mortgages, and even if you do manage to talk to a lender direct, it seems you are only offered one choice of financing scheme, sometimes suggesting that ‘one size fits all’.  This is far from the case; New Mortgage Finder has established relationships with a large panel of lenders including some of the leading French banks to ensure the provision of choice and a tailor made service for  their clients.  A real estate or asset financing operation must be handled with as much finesse in France as in any other country.  But for non-residents, transactions of this type raise specific issues that require particular attention, by taking in to account client’s personal circumstances and specific requirements along with meeting the sometimes-complex criteria of the lenders, New Mortgage Finder aim to find a solution for each enquiry.

Starting the process …

Once you have identified a region and narrowed your search down to 2/3 potential properties it is important to commence the search for the right mortgage and to be clear on what is achievable.  Caution must be taken, as in France the moment you put in an offer on a property and that offer is accepted, you will be required to sign a pre-sale contract, ‘compromis de vente’, and place a deposit which can be as much as 10% of the asking price.  A mistake at this point could result in costing tens of thousands of pounds. In some circumstances this deposit is non refundable should you fail to complete your purchase.  This is why seeking professional advice and guidance is imperative prior to the signing of any legally binding contract.  The preliminary contract commits both the purchaser and vendor to the transaction, subject to a number of ‘conditions suspensives’ (get-out clauses).  Once the preliminary contract is signed and a deposit paid, the purchase price is fixed and may not be changed.  A completion date is included in the contract, which is typically 8 weeks hence.  The deposit is paid in to a special ‘escrow account’ held by the Notaire ( (French conveyancer or legal representative) acting for the seller, or to the estate agent providing he is covered by a the professional guarantee of a ‘caisse de caution mutuelle’.  There is a legal requirement that the agent should display a certificate in their office to this effect.  The purchaser generally has one month to obtain a loan from the date of signature on the contract.

Steve Morgan strongly suggests that professional advice is sought from an overseas financier such as New Mortgage Finder to ensure that lending is achievable to secure and complete the purchase.  It is never too early to start this process, as a number of supporting documents are required for French loan applications and these can take time to collate.  The importance of this supporting paperwork is due to the inability of French lenders to access credit searches, such as those available to UK mortgage lenders. The only information accessible to overseas based lenders are public domain information, such as County Court Judgments, bankruptcy etc. To overcome this gap, these lenders don’t have any other option but to use other sources of information, such as bank statements and mortgage/outstanding loan statements including credit card account details. These documents provide the detail surrounding payment history and are therefore used to judge the risk by the lender. 

Accessing a French mortgage can seem so much more of a tedious process than in the UK. The French legal environment, as far as banks’ responsibility towards their clients is concerned means that lenders must be prudent and diligent when assessing people’s borrowing capacity. For example, the concept of self-certification mortgages does not yet exist in France. French lenders use specific calculations to determine how much each applicant can borrow against a French purchase.

Rather than using an income multiplier as a basis, most French lenders calculate financial commitments (loans, rents…) including the requested mortgage, as a percentage of stable pre-tax income. As a general rule, the ratio should not exceed one third (this is not French law but simply widespread practice among lenders in France), but obviously this depends on the figures involved, as the higher the income, the higher the debt ratio can be. In fact, most lenders try to apply their own rules with common sense and look at the actual amount of disposable income, not just the percentage. As for loan-to-value, the usual maximum in France for non-resident buyers is 70% or 80% going up to 85% in certain circumstances.

Sterling or Euro Mortgage?

When buying your French Dream house foreign buyers will at some point have to weigh up the options for financing the purchase. If they are lucky enough to be able to sell their existing property in the UK to fund the French purchase, then they have little to worry about (a euro mortgage however can still prove financially beneficial), but if not, they are probably going to need some advice about borrowing money. It’s a brave man that tries to go it alone, some might say foolish.

UK buyers have two currency options for financing their new property in France: Taking out a loan in France in Euros, or taking out a loan on their existing property in their own country and currency.

As although it might be slightly lengthier to obtain and incurs a notary registration fee of up to 2% and higher loan application charges; a loan in euros presents several strong advantages, many of them financially rewarding.

• Interest rates are generally up to 2% lower than sterling rates and more stable. As they are influenced by the European Central bank.

• Using the French property as security preserves equity on the borrowers own country assets.

• Borrowers are entitled to off set the mortgage interest in their tax declaration when the property is rented or let out.

• Specialist Mortgage companies based in the UK or France are better placed to assist their clients throughout the buying process.

• Once purchased, it is impossible to release equity from the French property for every day matters. Equity can only be released for very specific and somewhat limited reasons.  Therefore it is recommended that a French mortgage be considered at time of purchase.

• French consumer law provides greater protection for the borrower than UK law, for example, the cooling off period of Ten Days before accepting the mortgage offer.

All these reasons and more make borrowing in euros more feasible an option than it has ever been, so ensure you obtain the right mortgage advice from a fully qualified Overseas Mortgage company before you release equity on your UK property.

New Mortgage Finder can be contacted on 0870 350 8595 or by email to steve@newmortgagefinder.co.uk.  Please mention 1st-for-French-Property.co.uk. Further detailed information on the buying process in France and an enquiry form can be found at:

http://www.newmortgagefinder.co.uk/1stFP_contact_us.html

Footnote:
Information supplied by Steve Morgan at New Mortgage Finder

Some information provided by Wikipedia