Getting a French mortgage

If you intend on financing your French property purchase with a mortgage, it pays to be quick off the mark, says Clare Nessling

France is a long-time hotspot for Britons looking to invest in overseas property. Accessible, safe and familiar, it offers everything today’s buyer is looking for, including, significantly, a defiantly dynamic property market.

It’s also recently beaten Spain to the top European spot and destination of choice for Britons leaving the UK to live permanently abroad, following only Australia in the worldwide stakes. According to migration data released recently by the UK National Statistics Office, an estimated 18,000 Brits moved to France during 2010, nearly a third more than moved to Spain.

If you’re one of many people thinking of buying a home in France, whether as a permanent residence or as a holiday bolt-hole, there are many reasons why you should get your finances sorted out as early as possible, even if you’ve not started looking at properties. You need to give yourself time to research the mortgage market so that you can find the best possible deals and decide on things like whether a euro or sterling mortgage will be most suitable.

Arranging the financial side of things upfront also means you’ll know how much you can afford, and this is fundamentally important. At a time when securing a mortgage is no longer such a given, it’s vital that you determine how much you can spend. An approval in principle (AIP), will do just that – it will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search.

Any seller, given a choice, will prefer a purchaser who can demonstrate that they have their finance in place, and having an AIP could make you better placed to negotiate price. It’s tangible evidence that you can take along when househunting and it can also lead to your application being fast-tracked once you’ve chosen your dream home. What’s more, it costs nothing.

It’s really important not to get carried away with property you can’t afford, and you must also therefore take into account the associated costs of buying a property in France before you go househunting. You should add around 10-15% of the asking price to cover things like taxes, insurance, and fees.

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The application process for a French mortgage can take anything from six weeks to several months – another reason to start the ball rolling as early as possible. It takes time to get all the necessary documents together, and you must be prepared for some strict deadlines attached to the mortgage and general property purchase.

For example, when you sign the initial sales contract for your French property, you typically have between 30 and 45 days to receive a confirmed mortgage offer or activate your clause suspensive in the compromis de vente purchase agreement. This may sound like plenty of time but just one hitch can drag things out. Since the banks can take anything from a few days to several weeks to study a mortgage application, it makes sense to get it in as early as possible.

After the mortgage offer has been issued, there is also a legal cooling-off period of 11 days before you can accept it. This policy exists to protect the buyer and to ensure you’ve given full consideration to the mortgage agreement. If you’re working to a specific deadline, you need to factor this cooling-off period into your timescales. Once you’ve actually accepted a mortgage offer, it typically remains valid for up to four to eight months. After this set period, the bank is not required to honour the terms.

Currency fluctuations

A mortgage can limit your exposure to currency fluctuations, as you’ll only have to exchange the money for your deposit and fees for now. Naturally, you’ll be required to meet the monthly mortgage repayments each month, and if you have a euro-denominated mortgage, you’ll need to buy euros to do this. The foreign exchange companies can advise you on future rates and even allow you to enter into a forward transaction, which secures the rate at which you will be exchanging your pounds for euros now, but means you don’t have to make the exchange until a future date.

And here’s an interesting point: due to current exchange rates, a mortgage could be a good idea, even if you thought you didn’t need one. If you’re lucky enough to be a cash buyer, it may be worth taking out a mortgage until the sterling exchange rate gets stronger, at which point you can then pay it back, and ultimately reduce the price you pay for the property.

Re-sale, off-plan or leaseback?

Buying a resale property will give you access to the widest range of mortgage products. While most mortgages are on a repayment basis, French banks are increasingly offering interest-only options, and most will allow the choice of either a fixed or a variable interest rate. A leaseback mortgage is another option, whereby you buy the property and then allow a management company the right to let it to holidaymakers. Each lender, however, will have different rules as to what they’re happy to finance and what the terms will be.

If you’re thinking of going for ‘off-plan’ property, completion timescales will be less under your control but finance is available, with many lenders offering stage-payment schemes. The other option is to design and build your own property, or to purchase a project for renovation but these are obviously more complicated and time-consuming. Finance is available, but you’ll need to meet the individual lender’s requirements.

Rental income

There’s been a big rise in the number of overseas property owners renting out their homes to holidaymakers recently, primarily as a new source of revenue. France is no exception, as the French tend to holiday within their own country, especially when times are tough. This can be a great way of helping to finance your second home, especially if the rental income is in euros (and you have a euro mortgage) as you won’t have to worry about exchanging currency to make your monthly repayments.

Top tips when taking out a French mortgage

Obtain an approval in principle – this will confirm you can obtain the necessary funds before signing any dotted line and will prove to sellers that you’re a serious buyer.

Consider exchange rate fluctuations – it is generally recommended that an overseas mortgage and the income used to service the mortgage repayments are in the same currency, thus avoiding exchange rate issues.

Open a French bank account – to receive your French mortgage, you’ll need to open a French bank account, from which your mortgage payments can be debited.

Factor in additional costs – bear in mind that bills don’t end at the asking price. Agents’ and notaire’s fees, taxes, insurance, and so on, can often add at least a further 10% to your cost of acquisition.

Seek professional advice – it may be advisable to take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.

Clare Nessling is operations director at Conti France

Tel: 0808 178 3210