Cabinet Gregory                      

French Mortgages

The European Central Bank is continuing to encourage low rates and banks are passing on decreases in their mortgage rates. Fixed rate 15-year mortgages are currently available at around 1.8% or less.

At the same time, banks are tightening their rules for eligibility and allocation of loans.

To get the best rates, you must identify the right bank for the required type of loan
(main home, holiday home, rental property, equity release, interest-only, etc)
- and then present your case in the “best light” to show that you represent “low-risk” for the bank. Clearly, the more the bank wants you as a client, the lower the rate they’ll propose.

As an independent broker specialised in loans from 250k€ to 5M€ - I’d be glad to assist and help you find the best possible deal.

This page outlines
- Why use a French bank?
- How much can I borrow from a French bank?
- Repayment or Interest-only?
- Current mortgage rates in France
- French mortgages to limit wealth tax

Why use a French bank?

Using a French bank will ensure that
-  the loan value is deductible when calculating French capital taxes (wealth tax, inheritance tax, ...)
-  the loan interest is deductible when calculating French income taxes (main home, rental property, ...)
according to the usual rules.

If you are non-resident, your home bank may be able to offer a loan. However, if the loan is not properly recorded in France, it is not  deductible for French tax purposes.

French banks are fully aware of the rules and regulations and so you’ll avoid administrative difficulties.

Application forms are usually available in English, and many banks accept foreign proof of income - so the process is simple.

Loan repayments will be in Euros, so if your income is in another currency, you may want to consider a forward conversion contract to avoid concerns about future exchange rate fluctations.

If you already have a cheque account at a French bank, then why not ask them for the terms of a loan. Please then feel free to contact us to see if we could arrange a better rate.

How much can I borrow ?

French banks have always been strict on lending policy. Anglo-Saxon banks have mostly relied on being able to force the sale of the property. To force a property sale, the French bank must first prove to the courts that the borrower’s circumstances were financially sound at the time of taking out the loan.

Generally French banks will expect to see total mortgage outgoings of no more than 30-40% of income, including salaries, pensions, financial & rental investment income.  Most banks will take average income over the last three years. If you are self-employed or living off capital and investments, it is important to present your financial situation carefully.

As a French resident buying a main home in France, you can still sometimes obtain a 100% loan.

Most non-residents are limited to 85% loans, but “wealthy” foreigners can still obtain 100% loans if they wish.

If you wish to raise funds on an existing French property (Equity Release mortgage) you are generally limited to about 70% of the property value. You will have to justify how the funds will be used, though paying off another mortgage is not usually a problem.

If you are buying via a Société Civile Immobilière (SCI) one or more shareholders will generally have to provide a personal guarantee.

Repayment, interest-only, or IN FINE loans?

As in most countries, you will have a choice of “gradual repayment” or “interest-only with full repayment at the end of the term”. You can often obtain a mix - for example interest only for 5 to 10 years, followed by 10 to 15 years of repayment.

Repayment mortgages in France are generally up to 25 years maximum. Fixed interest rates are available for the whole duration.  Penalties are applied in the event of early reimbursement (though these are usually negotiable).

We would generally recommend using repayment mortgages for your main home as good financial planning.

Interest only mortgages are more suitable for rental properties or for specific tax planning purposes.

Often, French banks will only provide interest-only mortgages if you place a deposit of around 20% at the bank. This type of loan is known as IN FINE. The deposit is usually held in the form of an Assurance Vie.  Any investment decisions inside the Assurance Vie must be “approved” by the bank who keeps a charge over the funds. These funds will hopefully grow over the years and  pay off all of most of the mortgage at the end of the term. Obviously this depends on the quality of the investments - and it’s worth negotiating a “good assurance vie” from the start. As for any Assurance Vie, watch out for entrance, management and transaction charges too.  If you are interested in this type of loan - we can advise and organise the assurance vie side too.

We also work with one particular French bank that provides interest-only mortgages without any financial collateral.

Current mortgage rates in France

The rates charged by banks are currently extremely variable and depend on such factors as:
- percentage of loan to property value
- net worth & income of the borrower
- potential long-term risk to the bank on the loan
- potential ”other business” that you may bring to the bank

Rates recently achieved (2016) are:
- Fixed:     1.6% fixed for 15 years
- Fixed:     1.9% fixed for 20years
(clients with a low-risk profile and high value to the bank)

Please contact us to discuss the rates you’re likely to obtain...

French mortgages to limit wealth tax

As a non-resident, you are only liable to wealth tax on the NET value of your French property - less any loans DIRECTLY associated. In order to prove the association, the loan should be registered as an “hypothèque”. Loans recorded in the purchase deed are generally also considered as deductible.

As a new resident, you will benefit from five years’ exemption on assets held outside France. It may therefore be in your interest to use a mortgage - even if you have sufficient capital - and keep your capital outside France.

Unfortunately most banks will charge more for the mortgage than the wealth tax itself. It is therefore important to negotiate, calculate the wealth tax saved - and plan carefully how the “released funds” will be used. You should ensure that the purpose of any action taken is to increase your wealth - and not avoid taxes.

If you are prepared to take some level of risk, a full bank loan can be organised and you will pay no wealth tax. The bank will take a charge over the funds raised but you can buy and sell within an agreed investment strategy. Suitable investments would generally include bonds, shares and stockmarket funds.

If you are looking for low risk, you could limit the investments to an appropriate basket of government bonds inside an Assurance Vie or a capital guaranteed Fonds en Euros.

If wealth tax is well into the higher rates, you will be well advised to consider a loan.  On behalf of several clients, Cabinet Gregory has negotiated loan & investment packages with several banks, which can result in a substantial reduction in wealth tax.

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