The Mortgage rates offered by French banks are typically lower than those in the UK (currently starting at about 4%). French banks offer fixed rate or variable rate mortgages and generally lend up to 70-80% of the purchase price before tax. As a rule, to be eligible for a French loan, your debt ratio must be no more than 33%, i.e. that all your monthly debt repayments should amount to no more than a third of your monthly income.
Mortgage options in France
When buying a second home in France, there are three ways to raise the mortgage:
- against an existing property in your country, providing there is sufficient equity;
- against the French property;
- a mixture of both.
Mortgage on your main property
Raising capital against your principal property is usually the cheapest option. The mortgage funds are raised either by taking further borrowing on the current mortgage or by re-mortgaging to another lender. The fees involved are relatively small and the process is straightforward and familiar.
Taking a Mortgage on your French Property
Raising a mortgage secured against the French property allows buyers to purchase a property without putting their principal home at risk. Although the costs are higher, it is an attractive option, with historically low interest rates. There can also be tax advantages if you let out the property.
Raising money against your principal home and your French property is popular with purchaser who do not have large deposit in savings or who want to keep their savings intact. Basically, the deposit and costs are raised on your principal home, limiting the amount of equity; while the difference is raised against your French property.
French Mortgage calculation
French Mortgage calculations vary between the lenders. Some have a higher minimum loan size or lower maximum loan value. Banks generally consider loans from between 65 to 85% of the value of the property. Generally French banks work on a principle that the total of the French mortgage plus any other borrowing or rent should not exceed a third of the buyer's gross monthly income.
Mortgage products in France
Both fixed and variable rate mortgages are common in France. Variable rates are usually based on the Euribor (European Inter Bank Offer Rate) plus a loading. It is normal for applicants to be charged a fee by the lender, which is typically 1% of the amount borrowed. Most lenders will insist that buyer undertakes a survey and takes out some form of life/disability insurance.
French mortgage applications
When you approach a French bank for a mortgage you will need to supply all the following documents:
Valid passport or identity card
Telephone (land line) or gas bill or electricity bill
Bank account statements for the last three months
Contracts and repayment schedules for all current loans
Proof of principal residence (e.g. a council tax bill) or copy lease with receipt for last rent payment if you are lessees
Copies of the last three wage slips - and the contracts if employed for less than 18 months
Latest tax return or official statement of income at the end of the last year
Proof of the amount of personal capital contribution to the purchase (e.g. savings account statement)
The bank will study your dossier and if all is in order, make you a preliminary offer. This normally takes about 48 hours. They will then send you documents for you to open an account with them (if you do not already have one) and also an insurance policy (together with health questionnaire) to sign. The bank account is a current account (for the purposes of transfers of money related to the loan). You are obliged to have a French bank account if you want to take out a French mortgage. The insurance policy is similarly obligatory. It insures the loan and must be signed and sent back at the same time as the offer document.
French Mortgage charges
The bank charges for arranging a mortgage are usually:
administration - a flat fee of approximately 1% of the loan amount.
the cost of the garantie hypothecaire or mortgage registration - amounting to approximately between 1.5% and 2% of the loan amount.
A mortgage broker will typically charge you either a flat fee (usually several hundred pounds/ Euros) or a percentage (around 0.75%) of your total purchase price. Buy To Let Montpellier will organise your loan for no fee as part of their service.