A-Z of French mortgages

A-Z of French mortgages

Jo Cowling runs through the basics to help you organise your finances

If you are thinking about purchasing a property in France in 2013 with a French mortgage, our A-Z French mortgage guide will provide all the information you require.

Agreement in principle French banks can underwrite a mortgage application before a purchase has been agreed. An agreement in principle provides peace of mind that the funds will be made available for your purchase.

Broker A reputable independent French mortgage broker will guide you through the application process and ensure you end up with the most suitable mortgage.

Capped rate With this type of mortgage, the borrower benefits from the flexibility of a variable rate, with an extra layer of security against rate increases.

Deposit French lenders offer mortgages to buyers with 20% or sometimes 15% of the purchase available in their own funds.

Euribor French variable-rate mortgages are invariably linked to this European index, whose movements are determined by the rate at which European lenders will lend money.

Fixed rate French banks can fix the mortgage rate for an entire 20- or 25-year term. You may be surprised at how low these fixed rates are, but bear in mind that you will probably be penalised for making overpayments.

Guarantee French banks will take a formal security against the French property, for which there will be a charge payable by the borrower to the notaire.

Interest-only The terms for these facilities are often more restrictive than for repayment options. Consult your broker to find out whether you qualify.

Joint income When buying in joint names, the combined total of your income will be considered in support of the application. If you are permanently based in separate households, criteria may be restrictive.

Language Successfully ordering a croissant is one thing, but arranging a mortgage is an entirely different test of your French. Make sure that any third parties who are assisting you can speak perfect French.

Margin This is the rate charged by the bank above the base rate. It effectively represents how expensive the mortgage is, so make sure you look at the figures carefully to ensure that it is fairly priced.

Notaire Always make sure your mortgage broker can speak French and is prepared to liaise directly with your notaire.

Overpayments French lenders allow overpayments and early redemption on certain mortgages, provided that the amount redeemed equates to at least 10% of the original loan amount.

Property insurance The notaire will not be able to complete your transaction without proof of a home insurance policy on the property. Ask your broker for an English-speaking contact to help you arrange this.

Renovations French lenders tend to be cautious about lending against properties in need of restoration. Renovation mortgage funds will only be released directly to builders on completion of the works.

Survey French banks carry out their own surveys to ensure the value of their guarantee. This serves to give the buyer extra reassurance that a fair price has been agreed for a property.

Term The maximum mortgage term is 30 years, or until your 75th birthday.

Unencumbered It is difficult to take out a mortgage against an unencumbered property in France that you already own. This is why it is important to choose the most suitable mortgage at the purchase stage.

Variable rate The equivalent of a UK ‘tracker mortgage’ in France. The mortgage rate is revised in accordance with base rate movements, and you will invariably be free to make overpayments.

Wealth tax Assets above a certain value are taxable in France. A mortgage can be used to reduce the net value of a property and bring it under this taxable threshold, saving you an annual tax bill from the French government.

Yield Letting a property out shouldn’t restrict the type of mortgage available to you, but lenders do not take this potential future rental yield into account when assessing your eligibility for the financing.

Zut alors! That was a lot of information. We hope you found it helpful!

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