French mortgages
Introduction
See also France mortgages - introduction
In France there are no ‘self certification’ loans, and to obtain a mortgage you will need to prove that you are receiving a regular income, and that it covers all of your debts three times over. This is because of strict Banque de France lending laws state that your total debt cannot exceed more than 1/3 of your total income.
In some circumstances depending on the bank you may get a slightly larger margin but this is never more than a few percent. So if you earn €3,000 per month as a salary then your mortgages (including the new one), credit cards, loans and other debt repayments cannot come to more than €1,000 per month.
Types of mortgage loan available
Variable interest rate mortgages
These are based on the lending bank adding a margin to one of the Euribor indexes - the 3 month or 12 month rates are the most common used. They are typically fixed for anything from the first 3 months to 5 years, then go up or down as the market index moves. Some banks do offer variable rate mortgages that can safeguard against rises in the interest rate by capping the maximum rate, or by extending the term of the loan rather than raising the monthly payment. Most products also give you the option to convert to a fixed interest rate at any time.
Fixed interest rate mortgages
The repayments with this type of mortgage are fixed for the whole term of the mortgage, so you know exactly what you will be paying each month over the whole term of the loan. Fixed rates are usually higher than variable rates because of this, and there are normally larger penalties for paying off your mortgage early than would have been the case with a variable interest rate.
Interest only mortgages
Hugely popular in the UK and US, interest only deals are becoming more available in France if you want to reduce the monthly repayment to a minimum. There are however differences with the products in other countries:
Assurance Vie Linked (In Finé)
With this loan instead of placing your deposit into the property you take a 100% interest only loan and are obliged to place the deposit (minimum of 20%) into a French investment scheme which runs along side the mortgage. These schemes can have significant inheritance planning advantages and can offer flexibility if you are going to buy and sell a lot of properties as they can be kept as the deposit for the next purchase.
Dual Phase
Some banks also offer a product which is interest only for 5 or 10 years and then becomes a repayment loan for the following 10 to 25 years. This is particularly useful if you believe you will pay off large sums in the initial period.
Asset Backed
One bank now offers an 80% interest only product which does not require a deposit into an investment scheme and does not have a second repayment phase. You simply need to provide evidence of your other net assets up to a value of between 120% and 150% of the loan amount. This is a very good and popular product especially to those who own other properties. These products are available with fixed rate periods of 3 months, 1 year, 2 years, 5 years or 10 years.
Buy to let mortgages
For anyone looking to purchase on a buy to let basis this type of mortgage does not really exist in France. Future rent can be taken into account but the bank will normally devalue the property by 10% and then lend 85% of the 90% valuation, meaning a larger deposit is needed. The bank will also only take 80% of possible 'long term, unfurnished' rental income into account, which is considerably less than what you will probably achieve through seasonal weekly lettings.
Bridging Loans (Prêt Relais)
This is a mortgage aimed at those purchasing a property in France who have yet to complete the sale of their existing French property. In most circumstances the loan is available for up to two years pending the sale of the existing property as long as there is enough equity in it. The loan will normally only be for up to 60% of value of present home, although if the lender considers the risk a manageable one you maybe able to secure a larger amount. The borrower generally only pays the interest element of the loan, with the capital being paid off on sale of their present property.
Additional Tax benefits for mortgages on your main residence
As part of La Loi ‘TEPA’ (Law n°2007-1223) the French Government have introduced a policy aimed at helping more of France becoming home owners. If you meet the criteria you will be entitled to a reimbursement of up to a maximum of 20% (40% for the 1st year) of the interest paid on first 5 years of your mortgage set against your Income tax bill. If your net income tax liability before the deduction is less than the deduction then the French Revenue will repay you the difference.
- Tax Relief only applies to the first 5 years of your mortgage.
- Applies whether you are buying a house/apartment or building a house.
- Is available for 1st time buyers and existing home owners who are buying a new main residence
- Maximum reimbursement available for a mortgage in a single name is €3,750 over 5 years (€750 per annum), if this person is registered disabled then the limit rises to a maximum reimbursement of €7,500 over 5 years (€1,500 per annum)
- If the mortgage is in joint names then the maximum reimbursement is €7,500 over 5 years (€1,500 per annum), if one of the couple is registered disabled then the limit rises to a maximum reimbursement of €15,000 over 5 years (€3,000 per annum)
- There is also the possibility of additional sum of a maximum of €500 over 5 years (€100 per annum), for each person residing within your main residence for whom you officially have financial responsibility for i.e. Children, Parents. With regards to children where the parents are divorced and have joint access the maximum available would be €250 per child over 5 years (€50 per annum)
France mortgages - article credit and contributor details
This information is only provided as a guide and is based on our understanding of current legislation at the time of writing the article, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France.
TSG Insurance Services S.A.R.L. : Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 - www.orias.fr
