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International Mortgages
French mortgages: a beginner’s guide
Updated: Monday 28 November, 2011
By Martin Fagan
Famous for its wines, cuisine and cultural heritage, as well as being the biggest country by land mass in the EU, France really does have something for everyone.
From the chic elegance of Paris, to the hot Côte d'Azur in the south and the Germanic influences in Alsace to the east, France is a popular destination for holiday homes, retirement and property investment. While the thought of getting a French mortgage may seem daunting, it’s actually quite simple once you have the know-how.
Here’s our basic guide to French mortgages, explaining everything you need to know if you’re considering buying a property in France.
- French mortgages: the basics
- Using a notaire
- Who can take out a French mortgage?
- Am I eligible for a French mortgage?
- Renovation and construction loans
- Société Civile Immobilière
- Fees
- Consider using a broker
French mortgages: the basics
If you’re thinking about buying a house in France, it’s important that you understand the basics, as purchasing property abroad and getting a mortgage deal isn’t as straightforward as taking out a mortgage in the UK.
Typically, French mortgage lenders require a cash deposit of 20% of the total purchase price and any additional renovation costs. In some cases, this can be reduced to 10% depending on your situation. The maximum loan-to-value (LTV) available for a French mortgage from International Personal Finance is 90% of the purchase price, which can include estate agent’s fees, but not notaire’s (solicitor’s) fees.
Find out more information by reading the Creditchoices.co.uk guide to taking out a French mortgage.
Using a notaire
When buying a property in France, a notaire will be used to ensure that all the sales proceedings comply with French property law. One big difference between a solicitor in the UK and the French notaire is that the notaire is there to assist all parties, so the process of selling and buying the property runs smoothly.
The notaire is also responsible for receiving all contracts and checking their authenticity. A notaire is used whether the property being bought is purchased directly through the notaire, or through a French estate agent. You do not have to choose your notaire; they are generally chosen by the seller and are usually local.
Some British buyers feel uncomfortable using a French notaire and use a UK-based mortgage adviser specialising in French law to check the paperwork, although this will cost more. Other buyers appoint a second notaire - there is no reason why you cannot do this, and, as long as the two notaires are able to share the work, it need not cost more.
If you’re buying a property in France, your notaire will be happy to advise you on specific things, such as helping you choose a suitable regime for purchasing in order not to fall foul of French inheritance laws.
Find out more about the role of the notaire from the official website of the notaires of France.
Who can take out a French mortgage?
You can take out a French mortgage (or hypotheque, the generic French term for a mortgage) for the purchase of a new or existing property, or get a property on a leaseback scheme. Leasebacks are freehold real estate developments sold “off plan” (before they are built) that come with a full management contract.
To take out a French mortgage, it will need to be secured against a residential property in France. French mortgages are “full status” - where the lender verifies the applicant's ability to meet the repayments - so proof of income and outgoings will be required to submit an application.
For those looking to buy a French property as an investment and holiday home you rent out (known as a gîte), it’s not as straightforward as a buy-to-let mortgage in the UK. This is because most French lenders will not finance gîtes. For those that do, affordability is calculated like a normal purchase; you will need to be able to prove to the lender that you have sufficient income to service the mortgage. The rental income produced by the gîte is unlikely to be taken into account by the lender.
Am I eligible for a French mortgage?
Lenders will assess your eligibility for a mortgage on your ability to repay the money you borrow. As a rough guide, when applying for a French mortgage your existing monthly outgoings, as well as the monthly repayment on your new mortgage, should not exceed 33% of your gross joint monthly income, less any existing liabilities.
For example, assuming the gross monthly income is £5,000 and liabilities are £1,000, the maximum payment available towards a French mortgage would be £650 (£5,000 x 33% = £1,650 less £1,000 liabilities = £650). This would allow you a mortgage of about £123,500 over 25 years, based on an interest rate of 3.85%.
If the property you are buying is an investment, then a percentage of any rental or investment income you receive on it may be considered by some lenders.
Renovation and construction loans
Renovation and construction loans are also available for new-build properties, once your mortgage has been approved. The funds will be sent directly from the lender to the construction company following the submission of invoices.
To find out how much you can borrow, complete a personalised online mortgage quotation form.
Société Civile Immobilière
If you’re contemplating applying for a mortgage via a company or business you own or are a partner in, be aware that French lenders will not give a mortgage to a British company; however, it is possible to establish a French company solely for the purchase of a property. This is called a Société Civile Immobilière (SCI).
This type of purchase can benefit a group of individuals buying together, and can minimise French inheritance issues. Before you make a decision to purchase a property under an SCI, as with any mortgage, you should seek legal and tax advice.
To find out how much you can borrow, complete a personalised online mortgage quotation form.
Fees
The fees associated with purchasing a property in France are slightly higher than those in the UK. The buyer pays estate agency fees, usually 4-10% of the purchase price. The buyer also pays the notaire’s fees (around 7.5% for a resale property, 3% for a new-build), the bulk of which is tax that goes to the French government.
If you are taking out a French mortgage, you would normally expect to pay an arrangement fee to the lender of around 1% of the loan amount. If you want to register the deed of the mortgage, you’ll also pay an additional notaire’s fee of around 1.5% of the loan amount.
Consider using a broker
A French mortgage broker has the potential to take a huge amount of the pain out of the French mortgage application process. You may pay a fee, but if it reduces the hassle and frustration of a property transaction in a country where you might not speak the language, it could be money well spent.
Choose a broker that speaks both English and French, so they’ll be able to liaise with you and any third parties involved in the transaction throughout the process.
In addition to offering you a choice of mortgages from the widest possible panel of lenders, a broker should be able to give you access to reduced rates and margins that would not be available when approaching lenders directly.
THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP
REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.