Securing a mortgage for the French Alps
Jo Cowling looks to the mountains and finds there’s plenty in the French Alps for potential second-homeowners to get excited about
The French Alps have historically been one of the most popular regions in France for UK-based secondhomeowners. As we move towards the 2012 ski season, thoughts are turning towards completing potential purchases in time to enjoy this season’s fresh powder!
Also, this region continues to be considered a relatively safe haven in terms of market and price stability when compared with some of Europe’s historically popular second-home locations. In particular, the prime French Alpine resorts of Val d’Is�re, Meg�ve, Meribel and Courchevel continue to perform well and are ranked among the most desirable Alpine locations worldwide.
The ongoing popularity of these areas from both a tourism and real estate perspective ensures properties are highly sought after and French mortgage lenders have a strong appetite to lend in these locations. Both factors are cornerstones of why the property market in the French Alps has performed so well during the recent global turmoil.
Robust property prices in highly desirable locations are often the result of a limited supply of land on which property can be built and the Alps is a perfect example of this scenario.
Indeed one potentially surprising side effect of this, despite the challenges felt elsewhere, is that buyers who are keen to secure the property of their dreams in this highly prized region have started resorting to purchasing older properties in prime locations simply to secure the land on which they are built.
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These buyers may then demolish or substantially renovate the existing property to create the dream home they have been searching for. The performance of the property market in the Alps area also ensures that French mortgage lenders continue to have a strong appetite to lend to potential buyers.
While lenders have become more selective in the leaseback and new-build projects they wish to provide mortgages for, financing for the construction and purchase of second homes remains a more buoyant area.
Valuations of properties in the Alps also continue to be among the most consistent of all the regions in France – once again highlighting the attractiveness of this part of the world for both second-homeowners and French mortgage lenders.
If building a property in the Alps is a project that you are thinking of taking on, there are a number of construction finance options that are open to you.
Taking out a mortgage to finance the construction of your property is an option. The lender will sometimes require you to finance the purchase of the land and they will then finance 100% of the construction costs of the property. Some lenders may also finance a certain percentage of the purchase price of the land and up to 85% of the total costs of the project on completion.
If you are looking for a construction mortgage you will need to be aware there are two types of construction contracts, a contrat de construction, where there is only one contractor/project manager who looks after the entire project and a march� de travaux where a number of different contractors can be used.
The important thing if you are looking at this approach is to have all of the quotes and architect’s plans completed at the time you apply for your mortgage. Once the lender has approved your mortgage and completion has taken place, they will release the funds directly to the contractor or builder at key milestones during the build. This point is particularly important for borrowers who may have anticipated that the funds would be released directly to the owner.
French mortgage lenders also require that any construction work is carried out by French-registered and French-insured builders and if you are completing a construction project from scratch, they will want to see that it is a reputable and well-known construction company that is completing the work. The lenders are looking to avoid a scenario where a construction company gets into financial difficulty partway through the build process and they are then unable to complete the construction.
If you have the cash to finance the build of the property or you are looking to substantially renovate an existing property you have purchased, you have the option to raise money against the property on a post finance basis.
Typically in France, raising money against a property you already own is more complicated, if not impossible. Where this is possible, the interest rate you pay on the mortgage will be higher than for a straightforward purchase mortgage. The advantage of post finance is that it allows you to raise money against a property you already own at purchase mortgage interest rates.
Post finance French mortgage options will normally be available for up to six months after you have purchased the property or have completed the renovation or construction work.
For the construction and renovation options, it will be necessary for you to provide invoices for the work that has been carried out to provide proof to the lender of the money that you have spent.
During the construction and renovation of a French property, some French mortgage lenders offer the option of deferring either the interest or capital and interest repayments during the build or construction period and potentially for a short while afterwards. This can be an attractive option to ease cash flow during the construction stages, particularly if you are looking for the property to generate a rental income once complete.
The mortgage products that are available when considering construction finance include repayment and interest only options with fixed, variable and cap and collar products. The attractiveness of products will depend on your outlook for future movements in interest rates.
Construction and renovation mortgages can be significantly more complicated to arrange than a straightforward purchase so it is worthwhile considering using the services of a good French mortgage broker who will be able to liaise with all of the third parties involved in the transaction to ensure it progresses as smoothly as possible.
Jo Cowling is head of the French team
at International Private Finance
Tel: 020 7484 4600