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French mortgages - getting the best deal

French mortgages - getting the best deal

Updated: Monday 28 November, 2011

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Choosing the right French mortgage for your financial and personal circumstances is an important decision. This guide is here to help.

Whether you are planning to retire on the Dordogne, buy a holiday home on the south of France, or are simply making a property investment, this guide will help you understand how to take out a French mortgage.

Taking out a French mortgage: the basics

To understand the basics, read the Creditchoices.co.uk beginner’s guide to French mortgages.

To take out a French mortgage, it has to be secured against a residential property located in France. As French mortgages are “full status” - where the lender verifies the applicant's ability to meet the repayments - proof of income and outgoings in the shape of payslips and bank statements will be required when submitting an application.

You can take out a French mortgage for the purchase of a new or existing property, or get a property on a Leaseback scheme (freehold real estate developments sold “off plan” - before they are built - which come with a full management contract).

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Can I get a French mortgage?

Lenders will assess your eligibility for a mortgage product 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.

If you haven’t already, read the Creditchoices.co.uk basic guide to French mortgages for more information.

To find out how much you can borrow, complete a personalised online mortgage quotation form

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What kinds of mortgage are available in France?

A variety of mortgages are available, and both interest-only and repayment mortgages can be arranged on a variable or fixed rate basis, or a combination of the two:

Variable rate mortgage - These mortgages are typically fixed for the first six to 12 months, after which they will fluctuate as the market moves. Many banks offer variable rate mortgages that limit the risk of a rise in interest rates. For example, the interest rate increase can be capped. The monthly payment amount can also be fixed. If interest rates go up, the term of the loan is extended rather than raising the monthly payment. The advantage of variable rate mortgages is that they are the cheapest on the market in France.

Fixed rate mortgage - A fixed-rate mortgage has an interest rate that remains the same for the duration of the mortgage. One advantage of having a fixed-rate is that you’ll know exactly where you stand when it comes to monthly repayments. However, you’ll often have to pay a higher interest rate for this security.

Combination mortgage - This has both variable and fixed elements, putting it in the middle in terms of risk and known cost.

But be aware that all these cover the interest rate, not - repeat, NOT - the exchange rate between sterling and the euro.

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French mortgage terms

Some mortgage lenders may stipulate that the money borrowed must be repaid before you reach the age of 80, so it is important you check with your lender, especially if you’re buying a property abroad in which to retire.

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 when assessing how much you can borrow.

But the key term of a French mortgage is that your loan is advanced in euros and your monthly repayments will also be made in euros. If your income or the means with which you are paying the loan is sterling-denominated, you will be exposed to the vagaries of currency fluctuation.

This means if the euro appreciates against sterling, then it will cost you more in sterling to meet the monthly payment. By the same principle, if the euro falls in value against sterling, your monthly repayments will be cheaper.

For this reason it’s always a good idea to factor in a “buffer zone” on top of the maximum you can afford each month to cover you if the exchange rate moves against you. If the exchange rate moves in your favour, it’s a good idea to surf the money you’re saving every month into a deposit account and build up a fund to offset the effects if rates change direction and your payments become more expensive.

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What documents will I need to take out a French mortgage?

As with any mortgage product, you will have to show your lender a number of supporting documents, so they can assess your financial situation. Under French law, lenders are required to have full documentation proving that the borrower can afford the mortgage repayments. To take out a French mortgage you will need:

  • Proof of identity and residence (passport, driving licence)
  • Proof of income and outgoings
  • Bank statements
  • Property details

You will also need to open a French bank account, from which your mortgage repayments will be debited, as all French mortgage products are sourced in euros. Your mortgage adviser can help you with this but may charge an additional fee to cover their costs.

As the French do not believe in leaving debts behind when they go to that great fromagerie in the sky, a life insurance policy is also required by the majority of French lenders, and many insist borrowers use a preferred insurance provider. It is possible to take out a mortgage without French life insurance if:

  • You are able to obtain an Irish, US or UK life insurance policy to cover the amount of the mortgage where the bank can be named as the beneficiary as long as the mortgage is outstanding
  • You are willing to put a down payment of at least 40% on the property
  • You are willing to let the bank manage a sufficient amount of investments for you (stocks, bonds, funds) and sign over those investments to the bank to pay off your mortgage if needed in the event of your death

You should speak with your mortgage adviser first to make sure these apply first however.

If you’re buying a new-build property, buildings insurance must be in place for completion. Again, ask your adviser if you’d like to be referred to a specialist overseas insurance provider.

For a personal French mortgage quotation, or to speak to an adviser, complete an online mortgage quotation form.

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The cost of setting up a French mortgage

There are several costs to consider before taking out a French mortgage:

  1. Bank arrangement fees - Typically this is 1% of the loan amount, up to a maximum of €2,000 (£1,250). Should the lender wish to carry out a valuation, this will be covered by the arrangement fee. This fee will be deducted by the lender from your French bank account following completion.
  2. Notaire’s fees - Your notaire (solicitor) will provide you with a breakdown of fees payable once a sales agreement has been signed, but steel yourself for around 7.5% of the property’s value for a resale property, 3% for a new-build.
  3. Estate agent’s fees - These are often included in the purchase price of the property but if they’re not, the buyer pays them. These are usually 4-10% of the purchase price.

There may also be an application fee from your mortgage broker.

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Repaying a French mortgage

The best way to repay your French mortgage is to set up a payment plan with your British current account. A number of foreign exchange providers offer a 12-month regular payment plan that can be renewed annually. The provider will set a fixed exchange rate at the start of the plan, and the agreed amount will be debited from your UK account and sent to your French account each month. When the term of the plan ends, a new plan is agreed for a set term and the exchange rate fixed for the length of the term.

This service gives you peace of mind your French mortgage repayments will be met automatically each month and that the exchange rate won’t move against you during the agreed term to make your monthly repayments more expensive.

Please be aware that missing a mortgage payment in France may have serious consequences and we strongly advise you arrange for monthly debits from a UK account.

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Remortgaging a French property

You can raise capital on your French property, and it is possible to raise funds on your French property to redeem another mortgage you may have, French or British.

You can also remortgage your French property, though this will incur costs both with the notaire and with the new lender.

It is essential you check with your existing lender if there are any redemption penalties or fees charged for cancelling your existing mortgage.

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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.