Simon Verity of Blacktower Financial Management (International) Ltd. Explains the procedures and ways French Mortgages work. As an International Financial adviser, he offers guidance and professional financial services and products.
Mortgages in France.
In many ways, the processes of arranging a mortgage in France is similar to that in the UK and much depends on the rules and regulation of the Bank you choose to place your loan with.
Like in the UK 100%, mortgages are available to residents of France, however “second” homes bought in France by residents elsewhere may only be eligible to borrow 80-85% loan to value needing to provide the rest as a deposit. Most French Banks will make a charge of 1% of the loan as an arrangement fee but in each case, this is something that needs to be discussed with the bank involved.
Notaires conveyancing fees are paid by the purchaser and expect to pay around 8% for this service for an existing property, with fees being in the range of 5% for new builds (depends on the house value, there are fixed barems or charges set by the government). In addition, there will be land registry fees to pay.
Lending values in France is regulated by strict rules set by the Banque de France and in simple terms, the maximum that can be lent is 33% of your “disposable” income. A bank will look at your total revenue and deduct existing loans and other fixed payments arriving at a net annual income. They reduce this figure to a third and then divide it by 12 months to give a monthly repayment. This is the maximum you can borrow per month for both the new loan and to cover compulsory property insurances. Once the maximum monthly repayment is known then a maximum lending value can be calculated using different mortgage terms, this can be over 25 years in France but depends on your age. These rules can make things quite difficult for those wanting to borrow large sums when they can provide only limited proof of guaranteed income, such as the self-employed.
Once sufficient income has been established to the banks satisfaction then Life assurance is compulsory and this is normally arranged by the bank at relatively low cost. People with health problems may see the premiums increase. Some banks insist you take the life cover with them.
The property to be purchased in general terms has to be “habitable” and the bank will normally authorise a valuation to be undertaken to confirm the loan is secure against the buildings value. However, some banks will lend to fund renovations, new builds etc and this can be done on a staged loan basis as works unfold and are completed.
Of course, mortgage application forms, life assurance and buildings insurance applications will have to be completed. Further to this the bank will ask for the signed contract of purchase or “compromis”, 3 months payslips and proof of incomes (at least two years tax returns self employed), passports, birth and marriage certificates (divorce papers), bank statements, statement of assets, proof of payment of previous loans or rental payments etc!
For new builds and renovations, they will require a schedule of works to be done, proof that the builder is French registered and insured, and quotes for all works to be undertaken with proof of planning permissions etc.
Once all paperwork is completed the client is sent an offer letter which they must keep for at least eleven days to “cool off”, after this period but before 30 days is up if the client wishes to proceed with the loan then the offer letter is signed by them and sent back to the bank and at the same time the Notaire is informed that funds have been agreed so that legal work can continue. In general terms from the signature of the “compromis” to completion of the purchase periods of four months are not unusual.
Mortgages are typically taken over 10 to 25 years and in France you have the choice of fixed interest rates or variable rates similar to the UK. It is the norm to take capital and interest loans however there are two notable exceptions being; Interest only which is very rare and the borrower has interest only payments for a period but the loan reverts to capital an interest repayment later, and Equity release plans which are again very rare due to strict lending rules in France but do exist.
Any further information can be found out by contacting Simon Verity via this link, just mention that you found him via Renovate in France.