France is in an increasingly popular destination for investors from the UK who are looking to purchase abroad. The country’s popularity is partly due to accessibility and partly to the comfort that British people feel with the French legal and financial structures.
French Mortgage Details - The Basics
Although the types of French mortgages available and the processes are relatively similar to those in the UK, there are some crucial differences of which any potential borrower should be aware. As many banks, both in the UK and in France, are prepared to offer mortgages on French property, it is largely a buyers¡¦ market, meaning that an understanding of the terms is even more important to ensure you secure the best possible deal.
Points to Note in Relation to French Mortgages
Generally speaking, it is possible to borrow approximately 70 percent of the total purchase price as a mortgage. Some lenders, however, will offer up to 100 percent. Mortgages are available for periods of between 5 and 20 years, although most lenders will not offer any mortgages past the borrower¡¦s seventieth birthday.
It is also worth noting that mortgage interest rates in France are typically 1 to 2 percent lower than similar mortgages in the UK. It is also possible to obtain a mortgage in France that is fixed for the life of the loan.
In order to effect the transfer, a notary will be required and their fees can be as much as 10 percent of the sale price. It is normal for their fees to be around the 7 percent mark, 5 of which is often stamp duty and the balance is for their own fees. Anyone obtaining a French mortgage will also have to pay the mortgage registration tax of approximately 1 to 1.5 percent.
Buy to Let Properties
The way that mortgage lenders in France assess your ability to repay the mortgage is slightly different from the UK, which can be used to the advantage of a buy to let investor. In general, banks take a third of the gross amount that the borrower receives as income. This income includes salary and any investment income (including the rent that you receive from the property you are purchasing) once they have deducted regular loan payments such as car loans, UK mortgages and personal loans. This is the amount that you are deemed to be able to pay back to the French mortgage provider.
As you will see, allowing you to use both your earned income and rental income, means that you are likely to be able to borrow more than if you were opting for a straight buy to let mortgage within the UK.
There are certain anomalies with the mortgage system in France which should be noted including the ability to obtain a fixed rate loan for the duration of the mortgage;
it is also possible to take both rental income and earned income into account when calculating the amount that can be borrowed, leading to a higher potential borrowing limit;
if a French mortgage is taken, a mortgage registration fee of approximately 1 to 1.5 percent of the sale price is payable to the notary on completion.