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Guide to French Mortgages
The basic facts…
The single most important element in successfully getting a mortgage in France is INCOME…
There are no ‘self certification’ loans and there are no non-doc (“sub prime”) loans in France, and you will need to prove that you are receiving a regular income that it covers all of your debts three times over. This is because of strict Banque de France lending laws state that your total debt cannot exceed more than 1/3 of your total income, in some circumstances depending on the bank you may get a slightly larger margin but this is never more than a few percent. So if you earn €3,000 per month as a salary then your mortgages (including the new one), credit cards, loans and other debt repayments cannot come to more than €1,000 per month.
The repayments for this mortgage over 25 years at 4% would cost €1345 per month, plus approximately €80pm life insurance. This would mean that you would need to prove an income, after all other debts, of €4000pm or approximately €48,000p.a. Depending upon which bank you approach will depend upon this figure being your Net or Gross figure.
The notary fees tend to work out as: 6.3% in government taxes (like stamp duty), plus 1% in notary administration fees and approximately 1% of the mortgage amount assignment fee if you are taking a mortgage to assign the bank’s legal interest in the property. At the moment, EU residents may be able to borrow up to 100% of the property purchase value, (i.e. sale price less estate agency fees), but depending on their nationality, non EU residents may only be able to borrow up to 75/80%. The loans can be for up to 30 years, depending on age and bank chosen. As the buyer you need to fund the deposit (minimum 15%) plus the notary costs (approximately 8%).
All mortgage interest rates in France are linked to the Euribor (Euro Interbank Offered Rate) which was introduced at the beginning of 1999 along with the European single currency (the Euro), because European banks considered that it was necessary to establish a new interbank reference rate within the Economic and Monetary Union. See the following link for more information - www.euribor.org
Variable interest rates
These are based on the lending bank adding a margin to one of the Euribor indexes, normally the 3 month or 12 month rates are the most common used. They are typically fixed for anything from the first 3 months to 5 years, then go up or down as the market index moves. Some banks do offer variable rate mortgages that can safeguard against rises in the interest rate by capping the maximum rate, or by extending the term of the loan rather than raising the monthly payment. Most products also give you the option to convert to a fixed interest rate at any time.
Fixed interest rates
The repayments with this type of mortgage are fixed for the whole term of the mortgage, so you know exactly what you will be paying each month over the whole term of the loan. However fixed rates are usually higher than variable rates because of this, and there are normally larger penalties for paying off your mortgage early than would have with a variable interest rate.
Interest only mortgages
Hugely popular in the UK and US, interest only deals are becoming more available in France if you want to reduce the monthly repayment to a minimum. There are however differences with the products in other countries:
Assurance Vie Linked (In Finé):
This type of loan is mainly offered by offshore banks and is where the bank will offer a loan against capital invested with them, not all banks are able to do this as a mortgage but there are a few who can which can make this an interesting option regarding wealth tax. If the bank can secure a mortgage they will typically lend up to 100% of the amount you can invest.
Buy to let mortgages
For anyone looking to purchase on a buy to let basis this type of mortgage does not really exist in France. Future rent can be taken into account but the bank will normally devalue the property by 10% and then lend 85% of the 90% valuation, meaning a larger deposit is needed. The bank will also only take 80% of possible 'long term, unfurnished' rental income into account, which is considerably less than what you will probably achieve through seasonal weekly lettings.
Bridging Loans (Prêt Relais)
This is a mortgage aimed at those purchasing a property in France who have yet to complete the sale of their existing French property. In most circumstances the loan is available for up to two years pending the sale of the existing property as long as there is enough equity in it. The loan will normally only be for up to 60% of value of present home, although if the lender considers the risk a manageable one you maybe able to secure a larger amount. The borrower generally only pays the interest element of the loan, with the capital being paid off on sale of their present property.
Interest Free loans for first time buyers – PTZ+ 2012
Up until last year the PTZ (Pret Taux Zero) loans which were set up by the government to help first time buyers (not owned main residence for at least the last 2 years) were available for existing property and new builds, however from 1st January 2012 this has now been limited to just new builds. However in June 2012 an existing building that is undergoing major renovation could also qualify for a PTZ+ loan depending in your circumstances. And following on from the introduction of the strict BBC (Bâtiment Basse Consommation) environmental label into the loan criteria in 2011, the recent changes for 2012 have a much larger emphasis on this with the larger loans only being given to properties that meet this label.
Apart from this change the loans are now means tested as there are now also limits on the amount of annual income the family unit can have to be eligible for this loan, the limit depends on the zone you live in and the amount of dependent children you have. The loan duration of the loan has also now changed from 5 to 30 years in 2011 to 8 to 25 years for 2012 - for more information see the official government website - http://www.developpement-durable.gouv.fr/spip.php?page=simulateur
This information is only provided as a guide and is based on our understanding of current legislation at the time of writing the article, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
If you have a question, want to arrange for a free financial review or just want further information Steven Grover can be contacted on +33 (0)325461631, via my website www.financialexpat.com or via e-mail email@example.com
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France. TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d'immatriculation 07 025 332 - www.orias.fr
Updated March 2012