French mortgages

It is necessary to understand that mortgages in France have always been substantially more controlled than mortgages in the UK and USA, and many other European countries.

In France a significant down-payment (deposit) is required, typically 20% of the purchase price; and there must be clear evidence that the borrower can meet the repayments without being financially overstretched - usually the mortgage payments can not exceed one-third of total income. If you have existing mortgages, loans and credit card debts these weill also reduce the amount you can borrow - since they also have to be paid from the 'one-third'.

Hence, if you have net income (after tax etc) of £2000 per month, you could borrow an amount giving a repayment of about £700 per month. If you already have mortgage and loan commitments of £400 per month you can only borrow an amount that will increase your monthly obligations by a further £300 per month.

These restrictions have significantly helped France to avoid the boom-bust trends in property prices of many other countries.

Loans arranged outside France tend to be more flexible - although changes in banking and loans following the financial troubles in the banking world in late 2008 - are likely to mean that lenders are much less willing to lend more than can be easily afforded.

Mortages can be designated (ie the money borrowed) in either euros or a different currency. Your choice will depend on several factors, including where you currently reside and what currency your income is in.

Even if a non-euro currency seems more convenient, or you think that the prospects are better for a sterling loan, there are sensible ecomomic reasons to have assets and loans of roughly the same amount in the same currency.

If you have a house valued in euros and a loan valued in sterling, then a change in the sterling-euro exchange rate can mean that the value of the loan can change to be greater than the value of the property. It could also move in the opposite sense of course, diminishing the relative value of the mortgage. The point is, for reasons outside your control, you could end up with a mortgage that you can't repay by selling the property, simply because exchange rates have moved.

Your mortgage can be arranged with either a French bank, or a bank in your own country. There are numerous mortgage brokers and mortgage advisers that will help you organise your French mortgage - usually based outside France. Be sure to get more than one opinion on the best source for your mortgage.

It would be advised to also open a French bank account - both for the mortgage itself, and for the other costs involved in running a property in France. In some circumstances it will be obligatory.

Important: remember that if you are buying a property in France with a mortgage, it is necessary to state this within the compromis de vente - the initial sale agreement that is signed at the notaires.

Tax issues and mortgage tax relief in France

In summary, if you have puchased a property in France as main residence, after may 2007, you might be eligible for tax relief on a part of the interest payable, up to a maximum of 3,750€ over 5 years (7,500€ if mortgage is in joint names).

 
 

Be aware also that income received from letting out your property will need to be declared (in France) as taxable income. If you have a French mortgage, you are likely to be able to reduce the income by the amount of the interest payments, for tax purposes.

Information is provided for guidance only and francethisway can in no circumstances be held liable for the information, which is supplied in good faith but should be verified with an appropriate legal adviser.