Mortgage specialist Clare Nessling helps a reader who has a query about when to apply for a mortgage to finance the purchase of his dream French home…
Question: I am considering applying for a French mortgage but am unsure whether I should wait until I’ve found an actual property. Have you any advice? John Power, Middlesex
Answer: There are many reasons why you should get your finance sorted out, even if you’ve not yet found the property you want. You need to give yourself time to research the mortgage market, find the best possible deals and decide whether a euro or sterling mortgage will be more suitable.
Getting your finances organised means you’ll know how much you can afford. An approval in principle (AIP) will tell you exactly how much you can borrow, avoiding potential disappointment later on if you fall in love with a property that is simply beyond your means.
An AIP is based on information you provide to a specific lender or broker, such as your income and existing financial liabilities, which is used to assess your financial situation prior to you submitting a formal mortgage application. It enables a lender to calculate your borrowing potential using set affordability criteria. The AIP comes in various forms depending on the individual lender or broker – for example, as a letter or certificate.
It’s often the case that sales have fallen through due to potential buyers failing to secure the funds they simply presumed would be available to them. Buyers need, for example, to be aware of the likely loan to value (LTV) obtainable on a mortgage, as this determines the deposit required. The maximum LTV in France at the moment is 100 per cent, but there are certain restrictions on who would be eligible for such a loan and it wouldn’t include the estate agent’s fees. It’s more common to obtain up to 80 per cent of the purchase price, including estate agent’s fees.
Given a choice, a seller will prefer a purchaser who can demonstrate that they have their finance in place. Buyers with an AIP could also be better placed to negotiate price.
In many cases you can obtain an AIP within 24 hours. It’s tangible evidence that you can take along when house hunting 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 is 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 house hunting. You should add around 10-15 per cent of the asking price to cover things such as taxes, insurance, fees and other costs.
The application process for a French mortgage takes an average of 4 to 6 weeks, at which stage you should have received an offer. But it can take several months – another reason to start the ball rolling as early as possible, so that you’re not hindered by any potential delays further down the line. 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 – this is usually added to the sales contract and enables the buyer to withdraw from the purchase if a mortgage offer is not forthcoming within an agreed timescale. It sounds like plenty of time, but just one hitch can drag things out. For example, it may be the case that work has to be carried out on the property by the existing owners if the relevant planning permission was not previously obtained.
After the mortgage offer has been issued, there is also a legal cooling-off period of 10 days – known as the 10 jours de r�flexion – before you can accept it. This exists to protect the buyer and to ensure they’ve given full consideration to the mortgage agreement. If you’re working to a specific deadline, you need to factor this into your timescales. Once you have actually accepted a mortgage offer it typically remains valid for up to 4 to 8 months. After this set period, the bank is not required to honour the terms.
Fact fileConti Financial Services