10 top French mortgage tips
If you’re financing your property purchase with a French mortgage, it’s vital you do all your homework and seek the right advice, says Clare Nessling
France remains the top choice for Britons buying overseas property, partly because it offers a wealth of opportunities for long-term investors. While historically-low mortgage rates and a strong pound may boost your budget, it’s still important to do your homework and get the right advice. There’s nothing to be gained, and everything to lose, by cutting corners.
If you are thinking of buying a property in France, one important rule always applies. Don’t let your heart rule your head. The principles you’d stick to in the UK also apply when buying overseas.
If you are thinking of taking out a French mortgage to finance your purchase, here are some hints and tips to help ensure that your buying experience in France is hassle-free.
1. THE APPROVAL IN PRINCIPLE
A formal offer from a French lender will not be made unless you first sign a sale and purchase contract on your chosen property. You should ask your lender for a mortgage ‘approval in principle’ so you know you’re going to be able to obtain the necessary funds before signing on the dotted line. It may also strengthen your bid when negotiating with sellers.
If you haven’t yet decided on a property, the AIP will tell you exactly how much you can borrow so you can start looking within a particular price range. It will show agents you’re a serious buyer, and in some cases can lead to a faster application process once you’ve chosen a property. And even better, it costs nothing.
2. CURRENCY FLUCTUATIONS
It’s increasingly common to take out a euro-denominated mortgage. This is often due to cheaper euro rates, but it’s also because it can make sense when it comes to currency fluctuations.
Even small changes in exchange rates can make a big difference to the purchase price of your overseas property, your monthly mortgage payments or your future rental income.
A euro mortgage is especially attractive if you receive a euro-based rental income, as it means you won’t have to worry about potential currency fluctuations. You will also avoid the cost of transferring sterling to a French bank account in order to cover the mortgage payments.
3. CHECK YOUR TAX POSITION
It’s important to educate yourself on the way inheritance works in France. If you own a property here, your estate will be subject to French inheritance tax. As such, if you have children, they inherit rights to your house automatically and your estate may not wholly pass to your spouse, hence you may need to seek advice on ways round this.
Taking out a French mortgage, however, may reduce your inheritance tax liability as there is a debt on the property. Also, if you rent out your property you will be liable for income tax. Seek professional tax advice to find out all the possible deductions.
4. SPECIALIST ADVICE
The importance of professional advice doesn’t stop at tax. It is advisable to seek advice from an independent English-speaking solicitor before considering a purchase overseas. You can also consult valuers, surveyors or architects who should be familiar with French law and practice and will also know the specifics involved in buying a property here. They can advise on matters such as obtaining permissions, licences and planning consents.
5. FRENCH BANK ACCOUNTS
In order to receive a French mortgage you will be required to open a French bank account, from which your mortgage payments can be debited. Where relevant, ensure you obtain a Certificate of Importation for the money you bring with you.
Set up standing orders from your local bank account to meet local bills and taxes. Failure to pay your taxes in France could lead to action by the authorities.
6. EXISTING LIABILITIES
The French lending system is very much based on apparent affordability. French lenders will consider your existing liabilities, including mortgage or rental payments, plus any existing loans, together with the proposed French mortgage payments. All this must not exceed 33-40% of your monthly gross income.
7. ADDITIONAL COSTSs
Bills don’t end at the asking price. Additional costs such as notaire’s and lawyer’s fees, local and national taxes, insurance, lender and mortgage fees must all be met and can easily add 10% to your cost of acquisition in France. Ensure you are aware of these before you finalise your budget.
8. COOLING-OFF PERIOD
You should be aware that once the mortgage offer is issued, there is a legal ‘cooling-off’ period of 10 days before you can accept the offer. This policy is in place to protect the buyer and to ensure that they have given full consideration to the mortgage agreement. If you are working to a specific deadline, you will need to remember to factor this cooling-off period into your timescales.
9. ADHERE TO DEADLINES
Be prepared for strict deadlines attached to the mortgage and general property purchase process. When you sign the initial sales contract, you typically have 30-45 days to obtain finance or activate your clause suspensive. This usually enables you to withdraw from the purchase if a mortgage offer is not forthcoming within an agreed timescale. Since banks can take anything from a few days to several weeks to study a mortgage application, it makes sense to get your application in as early as possible.
Once you’ve accepted a mortgage offer, you normally have between four and eight months to complete the sale. After this set period, the bank is not required to honour the terms.
10. LETTING YOUR PROPERTY
If you intend to rent your property out, a percentage of the income can be taken into account by the lender when calculating how much they’re willing to lend you, so be sure to let them know your intentions from the start.
Do your homework up front about who will rent your property from you. Make sure they have good references, and check what other legal implications you need to be aware of, such as how to end the lease.
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