Nathalie Hilton breaks down the French mortgage process to show that it is not as intimidating as many might fear
For many British property buyers in France, arranging a mortgage for the new purchase can seem like the most daunting step in the whole process. Indeed, securing property financing back in the UK is rarely a walk in the park!
Like any formal application, however, there is a method to the process and in this article we’ll explore a little further the hoops through which you’ll need to jump along the way. If you take each of our five steps into consideration, we hope that your experience of raising finance in France will prove to be a positive one and that you may even save some money.
1. Find out what is available
As with any time that you require financing, it is crucial to ensure that you obtain the most suitable deal for your particular circumstances. The first key rule of financing a French acquisition is that only French banks have the legal right to take a mortgage guarantee against a property in France. You will therefore need to compare the mortgages which are made available across the board by those lenders.
The good news is that, as the year 2013 started, the Euribor base rate – to which the vast majority of French mortgages are linked – had reached historic lows. This index has been steadily falling in an attempt to stimulate consumer borrowing during a time of economic difficulties in Europe.
This means that there are attractive rates available. Whether you wish to take a chance on the lowest rate, which may rise in the future, or fix a higher rate for the duration of the mortgage, there are choices available to you. Often this decision may rest on whether you intend to pay the mortgage off early, in which case you should be clear about the permutations on this front when considering the different products on offer.
2. Assess the criteria
Of course, all of these attractive mortgage options are only available subject to certain financial criteria being met. While mortgage rates may have turned in the borrower’s favour recently, it stands to reason that the banks are being a little more cautious with regard to their lending criteria. Nevertheless, British buyers in France still generally have access to loans of up to 85% of the property price.
The key calculation made relating to the borrower’s financial situation is known as the debt-to-income ratio. When the new French mortgage outgoing is taken into account, contractual payments on all loans and mortgages should not exceed 33% of income on a monthly basis. If you are moving to France, please be aware that the banks will need to see proof of a continuous stream of income – for example a pension – and that a mortgage cannot be granted on the basis of future income streams which are yet to commence.
3. Apply for pre-approval
Generally speaking, French lenders do not require you to have agreed a particular purchase in order to initiate the mortgage application. By submitting a full file of your financial paperwork, the bank will be able to grant an agreement in principle for a certain level of financing.
The benefits of doing so are two-fold. To begin with, obtaining the pre-approval gets you over the first hurdle of the application. This will speed things up for the later stages and give you more peace of mind with which to continue your property search. Secondly, the agreement in principle sends out a signal to vendors that you are a serious buyer. This puts you in a much stronger position when it comes to negotiating the price of your purchase, as you can point to financing which has already been agreed by the underwriters.
4. Attention to detail
As I am sure you are all aware, the French do have a fondness for bureaucracy. Mortgage applications in France prove no exception to this rule with the banks requiring plenty of paperwork in support of your application. In order to ensure that your application proceeds as smoothly as possible and to gain access to the excellent products and rates offered by the French banks, you will need to be prepared for the documentation demands, such as bank statements and payslips, that go along with it.
A French broker will be very used to the various requirements, and should provide guidance at every step of the process. You shouldn’t by any means be disheartened by this aspect. All banks now accept the majority of your documentation electronically, so there are fewer time delays due to the post. The whole procedure can easily be finalised within a period of six to eight weeks, which comfortably allows for the traditional target of a three-month sale in France to be met.
5. Think carefully about your foreign exchange
From the moment that you decide to make a purchase out in France, currency exchange rates should become a principal consideration. They certainly have an important role to play in relation to your mortgage. A slight movement in the euro/pound exchange rate can have a significant effect with respect to the deposit you can put down, and therefore potentially the sort of mortgage for which you may qualify.
A specialist foreign exchange advisor should be consulted, in order to secure the best rates when making those all-important transfers into euros. Furthermore, you may wish to take a flexible mortgage which will allow you to take advantage of foreign exchange movements. If the pound strengthens, it may be an opportune moment to make a large transfer into euros. Providing your mortgage does not penalise you for making overpayments, you will then be able to pay off a chunk of the capital of your mortgage, thereby effectively acquiring the property at a more favourable rate than was available initially.
These five steps are intended to give you some insight into French mortgages. It is worth remembering, when raising finance in France, that you needn’t attempt it on your own. As you can imagine, the French credit system is very different to the one you may be used to here in the UK. It might be worth consulting a reputable, English-speaking broker early on in the process. The broker will be able to answer any questions you ay have on any aspect of French mortgages and will then guide you through the application process, from submission of the application to the eventual release of funds.
Nathalie Hilton, French mortgage consultant at International Private Finance