Mortgages

French Mortgages

Generally, French institutions take the view that the purchase price is the value of the property and they will lend any portion of this (although the more you can afford to pay on deposit, the more favourable the terms). Conditions of the loan include that payment should not exceed a third of your net income including all existing commitments. Any spare 'income' could be used for further repayment of the mortgage. The amount, which you can borrow is then decided by working out how much you can 'afford'. An important point to note is that joint incomes are combined, as are outgoings.

A French bank or property finance institution would take first charge over the property as security and would normally lend over a term of 5 to 20 years either at a variable or fixed rate of interest. All mortgages in France are repaid by the capital and interest method: endowments or pension linking are not used at all.

When taking out a mortgage in euros, special consideration must be given to currency fluctuations against sterling, which will affect the cost of the loan relative to your UK income. The usual mortgage interest rate is fixed for the whole term of the mortgage; this type of loan is almost unknown in the UK, but is the norm in Europe and also in the USA.

As well as the 'fixed' rate of interest for French mortgages, there is also a 'variable' rate, which can fluctuate, but not usually by large amounts. Currently deals are available from 4.2%. The rates are often fixed for a period and then 'capped and collared' and can only move by a small percent (usually not more than 3%) each year.

There are various fees associated with borrowing in France. This includes an arrangement fee to the bank (which usually includes valuation costs) and extra costs to the notaire (property-conveyancing lawyer) for the registration of the mortgage at the Bureau des Hypotheques.

The amount, which can be borrowed on a property over five years old is normally up to 85% of the purchase price, not including notaire's or estate agent's fees. New properties are treated differently, in that if they are under five years old, the purchase price should include VAT (TVA) of 20.6%. It is possible to borrow up to 95% of the purchase price ex-VAT. In practice 100% mortgages are available but special terms would have to be negotiated.

The larger banks which offer mortgage facilities in France are Banque Nationale de Paris, Credit Lyonnais and Societe Generale. Credit Agricole functioned as a specialized mutual credit organisation until 1982 but now trades, more or less, as a mainstream bank. Note that as in the UK, mortgages on a property cannot be transferred from owner to owner as is possible in the USA. Additionally, a further arrangement, known in France as an epargne logement is available. Under this scheme one must save a minimum amount with a bank each month for a period of five years. After this time has expired one is guaranteed a mortgage to purchase the chosen property.

See Mortgage differences for a comparison of French and UK Mortgages