7 August 2020

Financing a French property purchase

France has always been popular among Brits looking for a holiday home but the easy accessibility of the country by car is making it even more attractive as we get to grips with living with Covid. Miranda John, director of international property finance at SPF Private Clients, discusses the mortgage options available to those buying in France

Unlike other destinations for holiday homes traditionally popular with Britons such as Spain, Italy and Portugal, France does not require you to hop on a plane. However, getting a mortgage in France has been affected by the fallout from Covid as is the case in other countries, with banks more conservative than usual as the repercussions play out. On top of this, there are ongoing concerns regarding a no-deal Brexit.

While standard affordability criteria has not changed, certain sectors are raising red flags. For example, if a high proportion of your income comes from bonuses or commission, many lenders have made the blanket decision to only take salary into account. Common sense can prevail but this will usually require invention from the credit department and a specialist broker will be more likely to have the opportunity to work at this level rather than a client making a direct application. Valuations have also been affected by lockdown so the maximum loan-to-value (LTV) a bank will consider has fallen as values may be up to 10 per cent lower (a maximum of 75 per cent LTV is available although 80 per cent should be reinstated in coming months). Surveyors are now able to visit properties once more however, and the market is expected to adjust quickly.

The mortgage model is very simple in France and with few exceptions, on a repayment basis. Interest only may be available but it is case-by-case. Long-term fixed rates are common with rates at some of the lowest we have ever seen. Those hoping to rent out the property to generate some extra income will find banks have no issue with this and will charge the same rate of interest regardless but a buy-to-let mortgage based on potential rental income does not exist per se. Instead, the borrower’s income and outgoings and age to a certain degree determine the size of the loan available.

High-net-worth individuals often find they do not fit the rigid mould of European retail banks’ criteria so are more naturally private banking clients. Banks in Monaco, Switzerland and Luxembourg can lend in most prime locations although they may insist on a certain ownership structure. These banks have the expertise to understand more complex revenue and may base a lending decision on assets rather than simply income. The type of loan a private bank offers is more usually a five-year interest-only facility and it is not a stand-alone or ‘dry’ loan as they are looking for a wider relationship with the borrower. What this translates to is a requirement for assets to be provided, usually for a minimum of €1million to be invested with the bank, so this option is really only suitable for property values of €3million-plus.

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