Property prices are still relatively lower in some regions of France than they are in the UK and part of the reason for this is linked to how the French banks calculate how much can be borrowed. This calculation will also be used if you intend to rent, take out HP on a car or any other financial transaction that involves credit in France.
French lenders will estimate that 33% of total income (joint income if there is more than one buyer) should be available for all financial outgoings. If a gross monthly income is £3000, then £1000 is available to repay all financial commitments, and that includes all UK rent, mortgages, loan repayments, maintenance agreements and the future French loan repayment. The number of dependents and some other factors will also be taken into account when analyzing an application.
Many banks have different lending criteria for the amount of loan to value that they will lend depending on the nationality of the applicants. Citizens of the EU, USA, Canada, Japan, HK. Singapore NZ and Australia should qualify for the maximum amounts. Other countries may have a loan restriction of 60%.
The maximum age that the banks will lend to is age 80 provided that life insurance cover is put in place to the end of the loan term. French banks prefer their own insurance companies for arranging life cover but it can be possible to use UK insurance with a few lenders. If you have had medical problems in the past or are borrowing a large amount of money then you may be asked to do extra medical tests. If there are 2 borrowers then the application will be based on the oldest applicant.
CAPITAL AND INTEREST REPAYMENT
A French bank will take a first charge over the property as security and will lend over a term of 25 years or sometimes up to 30 years from a few lenders. Mortgages in France are nearly always repaid by the capital and interest method. The usual maximum amount that can be borrowed in France on a property for nonresidents is 85% of the property valuation amount with a minimum loan of 75,000 euros which can sometimes include estate agent’s fees but will always exclude the notaire’s fees. The minimum loans available with the banks we work with are 50,000 euros. Special offers are sometimes available; please contact us for the latest details.
Interest only loans are available provided that the borrower can prove other EU based assets of 120-150% the amount borrowed excluding the equity in the property to be purchased. The loan term is normally restricted to 14 years with the loan being reviewed after the first 7 years with a maximum 80% loan to property value.
Interest only loans are available for an initial short period at the beginning of a loan that will revert to a capital and repayment period at the end. An example would be a 20 year loan term with the initial 2 years being interest only and the remaining 18 years capital and interest repayment. The disadvantage with these loans is that as the capital is repaid over a shorter period the proof of income must be higher.
EQUITY RELEASE LOANS
Equity release loans are still available from some French banks but the lending criteria has tightened up a great deal over the last few years. The money released should be for onward investment, ideally in other EU based property and the banks will check the end use through the notaire. It is not available for business purposes and not usually available for the self employed.
The interest rates on French loans have in the past generally been lower than interest rates on sterling loans. The usual mortgage interest rate offered by the French Banks is either at a variable or a fixed rate - when the interest rate is fixed at a set rate for the whole term of the mortgage. There are also options for a variable rate to switch into a fixed rate once during the term of the loan or to reduce or increase monthly payments or the loan term. Unlike the fixed rates, a variable rate has no early redemption penalties.
There are costs associated with borrowing in France. This will include an arrangement fee to the bank of approx 1% of the loan amount after completion of the purchase with a usual amount between 700 euros and 1,500 euros - for larger loans, refinance and equity release this fee can be more. The fee is paid to the bank after completion and can be paid at no extra cost over a period of time depending on the lender.
There is also a French government tax payable to the notaire for the registration of the mortgage at the "bureau des hypotheques" which will be an extra cost on top of the normal 5-6% notaire’s fees and is very approximately 1% of the loan amount but the notary in France will give you an exact quote for this.
Banks prefer to lend on a property that is easily resalable. If a property is in good condition then a valuation will be simple and the loan agreement straightforward. If the property needs renovation and works to make it habitable then the banks will often ask for renovation works to be included as a part of the loan amount. In this case then quotes will need to be included with the application from French builders on their headed paper and to include their builders insurance.
For new builds then lump sums are paid down in tranches as per the contract with the developers or builder.
Most banks for both renovation costs and new builds will allow you to draw the loan monies down over a period of usually up to 2 years, paying interest only on the loan until the whole sum has been unblocked, as well as a small retention fee. Life insurance will need to be in place for the whole loan amount.
FROM TYPE TERM LTV BANK FEES MONTHLY COST
1.05% FIXED 6 years 80% 1000 euros 1,433 euros
1.4% FIXED 10 years 80% 1000 euros 893 euros
1.85% FIXED 20 years 80% 1000 euros 498 euros
2.15% FIXED 25 years 80% 1000 euros 431 euros
2.6% INTEREST ONLY 14 years 75% 1000 euros 216 euros
2.5% INTEREST ONLY 14 years 70% 1000 euros 208 euros
2.2% 1st 10 yrs CAPPED 25 years 85% 1000 euros 433 euros
Current sample rates are as follows: