Why buying a French property with a mortgage can make you money
PUBLISHED: 11:37 25 February 2019
With low French mortgage rates (from 1.35% fixed for 15 years), high loan-to-value (up to 85%) and interest-only products, buying with a mortgage makes sense for many reasons. And with the impressive rental yields that can be made in popular tourist resorts, your French property could be paying you back quicker than you think!
Keep your cash
Buying with a French mortgage ensures that you don’t lock all your sterling savings and investments into your French home. Unlike the UK, there are few options to release equity on a French property if you own it outright, i.e. you don’t buy it with a mortgage. In most cases, the only way to get your money out would be to sell the property. You’d be better off investing your cash – a cautious investor is likely to get an annual yield of around 4%, which would more than cover the interest payments on your French mortgage.
Avoid exchange rate headaches
Another benefit of buying with a French mortgage is that you hedge your exposure to exchange rate fluctuations as French mortgages often have no early repayment charges. Instead of converting the full purchase price into euros, you only have to transfer the deposit and notaire’s fees. This means you can wait until the sterling strengthens and pay back your mortgage then, which will literally knock thousands off the sterling purchase price.
Free holidays and an income
As well as owning a place you can escape to for short breaks and longer holidays, your property could bring in an income too. The concept of a buy-to-let mortgage doesn’t exist in France, so there are no restrictions on letting out your property, whether it is purchased with a mortgage or not – which means there is the opportunity for your purchase to generate an income that you can reinvest, or at the very least, use to help pay off the mortgage.
Do the maths
To demonstrate how obtainable owning a French property is with the French mortgage rates and products currently available, we picked a four-bedroom chalet in the Alpine ski resort of Les Gets, currently for sale at €500,000.
If we look at an interest-only product, you could borrow up to 75% (so a loan of €375,000) at 2.2% over 14 years. Your monthly mortgage payment would be €688. When you consider that four-bed chalets in ski resorts like Chamonix, Morzine, Méribel or Tignes will easily rent out for over €3,000 a week over the winter and over €1,000 in the summer, it becomes clear that your holiday home can become a nice little earner – and that’s ignoring any capital increase you may benefit from if you decide to sell it in years to come.
Yes, there are costs involved with maintaining a second home and managing the rentals, but even taking all of those into consideration, you only have to rent the property out for a few weeks a year to cover all the costs including the mortgage payments!
So, by purchasing with a mortgage you can keep your sterling savings liquid and invest them over the term of the mortgage into financial vehicles that can generate annual returns of at least 4%. And with the low mortgage rates and correspondingly low monthly payments, it is relatively easy to get a sizeable return on renting out your property, even if you only do it for a few weeks a year.
Now, all you need to do is decide where to buy!
Fiona Watts is Managing Director of International Private Finance