Don’t let the strict criteria put you off. If you can qualify for a French mortgage, there are a number of benefits of using one to finance your purchase:
1. Interest rates can be fixed
After years of incredibly low interest rates in France, they have been increasing over the past year yet they are still significantly lower than rates in the UK.
Current rates for non-residents start at around 2.75%, Importantly, you can fix the interest rate for the life of the loan, so if interest rates continue to rise you are safe in the knowledge that your rate will remain the same. This means you will know exactly what your monthly French mortgage payments are going to be and know that they aren’t ever going to change.
2. Exchange rate volatility
Volatility within the currency markets will always be a concern to the non-resident buyer and fluctuations can have a huge impact. In 2022 alone the EUR/ GBP exchange rates have varied from lows of £1/€1.1 to highs of £1/€1.20. These variations mean that a €500,000 ski apartment or dream beach house would have gone from costing £450,450 when the rate was €1.1 to £416,666 when it increased to €1.20.
That’s an additional £33.784 you would have needed to ‘find’ as a cash buyer. If you were purchasing with a mortgage, however, you would only have needed to find an additional £6.757 which represents a significant saving. This is based on borrowing 80% of the purchase price-you only need to exchange the remaining 20% in cash meaning you are not as severely impacted by any unexpected movements in the foreign exchange markets.
3. Use your cash to invest and see a greater return
Although mortgage rates have risen, they are still comparatively low compared to the average return on investment that you could achieve from an ISA or managed share fund. So rather than tying your hard-earned cash up in a property, you can use a French mortgage to fund your purchase and put your cash to work and enjoy a return each year. In March 2020/March 2021 the average return on a stocks and shares ISA was 13.55% and in February 2021/February 2022 it was 6.929%”. (Moneyfacts.co.uk)
4. Only one chance to get a mortgage – No equity release
Unlike the UK, it is nigh-on impossible (and very expensive) to release equity on an unencumbered French property. So, if you are a cash buyer the only way you will get back that money in the future would be to sell the property. This means it would not be accessible very quickly should the need arise. And if the last few years have taught us anything, it’s that you never know what is around the corner! Borrowing rather than spending will allow you to keep that rainy day fund for a rainy day.
Also be aware that if you do work on your dream home and the value increases, you won’t be able to release this equity further down the line.
Although the current lending criteria is reasonably strict, there are still options for non-resident mortgages in France and purchasing with a French mortgage still makes financial sense. We anticipate that a number of lenders will be returning to the non-resident lending market in the new year and so we expect criteria to be changing all the time. So now, more than ever, you can’t afford to leave your mortgage application to chance.
Please ensure that you speak to an experienced dual-qualified specialist mortgage broker (our consultants are qualified in both the UK and France) who can give you sound financial advice and scour the whole market to find the most suitable French mortgage product for you now, or in the future.
Fiona Watts is the co-founder and Managing Director of International Private Finance
The unique mix of legal, financial and tax advice along with in-depth location guides, inspiring real life stories, the best properties on the market, entertaining regular pages and the latest property news and market reports makes French Property News magazine a must-buy publication for anyone serious about buying and owning a property in France.
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