French mortgage guide for expats in 2022 – that will be the topic of today’s article.
Before introducing this article, if you are interested in our core services which are expat financial, insurance and mortgages, you can contact me here.
The best time to consider your financial situation is when you are moving to a new country.
Introduction
Despite global economic uncertainty and the Eurozone’s troubles, the French real estate market continues to be resilient, helped by a high level of activity among local and international homebuyers, including the British.
France offers a completely different way of life, there is everything for every taste and budget. Combined with a good life expectancy, more than 2,000 hours of sunshine a year, and a favorable exchange rate.
The country’s vibrant sights and rich culture, history, scenic countryside, cities, food and wine are considered chic the world over. France is by far the most visited country, attracting more than 80 million tourists annually, according to the World Tourism Organization.
Despite the emergence of new global property destinations, some of which offer cheaper properties, France remains a firm favorite among Britons relocating abroad, second home buyers and investors.
France is a great country for many expats, it is easy to commute to work, property prices are fairly stable, and the country offers a good standard of living with overall daily living costs lower than most European countries.
The risks associated with buying property in France have traditionally been quite low, unlike in some other European countries. The British make up about a quarter of all foreign homebuyers in France, and total sales are now approaching the boom period of 2003-2007.
Purchase cost
When buying a property in France, in addition to the purchase price, various purchase costs must be considered and taken into account:
- The real estate agent’s fee, although usually paid by the seller, is sometimes paid in part by the buyer
- Stamp duty up to 5%
- Notary fee from 1000 to 2000 euros depending on the value of the property
- Mortgage commission about 1%
- The lawyer’s fee usually ranges from 800 to 2000 euros
Should you buy property in France?
Are you thinking about buying property in France, or you’re thinking about moving or retiring, buying a vacation home or investment property, one of the first things you need to know about is how to get a mortgage in France as an expat.
In this guide, we will talk about everything you need to know about getting a mortgage in France. This includes types of mortgages, interest rates and fees, how to apply, and how long it usually takes. So let’s get started.
The French real estate market is one of the main real estate markets in Europe. With low mortgage rates, it’s easy to see the attraction for foreign buyers.
Data from Groupe Credit Agricole showed that sales fell slightly in 2018, although home price increases were still significant in some areas. For example, general prices in France rose by 1.73%, while in Paris they rose by almost 7%.
According to Banque De France, the average new mortgage rate in December 2018 was just 1.49%. This is a 0.12% year-on-year drop and the lowest level recorded in almost 16 years.
However, the real estate transaction fee is around 10-15% of the purchase price. Capital gains tax applies if you sell real estate (around 35-40% in total).
These factors are especially important for those planning a stay of less than five years; reimbursement of costs in the short term may not be possible.
Can you get a mortgage in France as a non-resident?
French banks and mortgage providers are often as willing to lend to foreign buyers as they are to residents¹. This means that, in theory, you should have no trouble getting a mortgage to buy your dream French property.
However, as a UK buyer, you may be subject to some additional requirements and restrictions. In France, a typical loan-to-value ratio (LTV)—essentially how much a supplier is willing to lend you compared to the value of the property—is around 70-80%². But some lenders will only provide mortgages up to 50% of the purchase price for non-EU citizens.
As a foreign buyer, you may also need to do the following:
- Open a French savings account with a minimum deposit covering at least 24 mortgage payments.
- Take out a life insurance policy for 120% of the total mortgage loan where the lender is the beneficiary.
- Take out health and disability insurance policies to cover mortgage costs – in some cases, people over 50 may be asked to undergo a medical examination.
Whether or not you have to comply with these requirements depends largely on the individual lender. It’s always a good idea to check the terms of a proposed mortgage before going ahead.
Mortgages in France
If you don’t already have savings or are planning to free up capital from your UK home to buy property in France, there’s a good chance you’ll need to get a mortgage to finance your purchase.
If you are serious about buying property in France and are in need of financing, you should start your French mortgage almost before you do anything else, so you can act with confidence knowing that you have received the financing you need to buying a new home.
Planning ahead at the beginning will also give you a better idea of how much you can spend on your French property and will be able to determine the likely future financial implications of your purchase.
Leaving the financial side of buying property in France to the end puts you potentially in a weaker position, especially if you need to raise funds in a hurry, which could mean you end up not being able to secure the highest possible mortgage. attractive interest rate on the loan.
Reasonable credit terms
The risks associated with buying property in France have traditionally been fairly low, in contrast to the existing high-risk nature of buying property in some other European countries, thanks to the country’s relatively strong economy, underpinned by France’s prudent attitude towards mortgage lending. .
Mortgage borrowers in France are generally only allowed to borrow one-third of their total gross monthly income, with a cap on the maximum mortgage value of a loan available, and while there are lenders willing to approve mortgage applications from those looking to buy property in France, they will do so only if the numbers add up.
Deposit
For French mortgages, you will generally need a minimum deposit of 15% to 25% of the purchase price of the property, with fixed or variable rates.
Repayment or interest only
While French lenders usually offer mortgages with repayment and interest only, most banks currently make housing loans on an repayment only basis, meaning that the debt must be paid off each month for the life of the mortgage.
Fixed or variable rate
Fixed-rate mortgages usually offer more security and guaranteed repayment, but have a higher value than variable-rate mortgages, which can go up or down based on changes in interest rates, usually in the form of a set percentage.
Variable rates are usually based on a three-month Euribor or an annual Euribor with a margin of 1-3% for the lender, depending on the nature of the loan and the characteristics of the borrower. But it is worth noting that in France, most mortgages are issued on the basis of a fixed interest rate.
Whether you choose an adjustable or fixed rate mortgage, you will generally have to pay an early repayment fee if you want to pay off your mortgage early or remortgage on a new deal. But repayment penalties in France are low – usually less than 1%.
Insurance
Building insurance is mandatory for anyone who wants to take out a French mortgage, and a notary public must obtain confirmation of this before you complete your property purchase. Some banks may offer their own insurance product, but they cannot force you to accept their insurance.
Life insurance usually depends on the ratio of the loan to the value of the mortgage and the lender. For example, if you borrow less than 50% of the loan to value, you may not need to – the lender will most likely ask you to sign a declaration. Otherwise, this is usually a requirement.
How is a mortgage issued in France?
You can find the same types of mortgages in France as in many countries, including fixed-term, variable-rate and interest-only mortgages. A relatively recent addition to the French mortgage market are fixed rate mortgages.
Fixed rate mortgage
One of the most popular fixed rate mortgages, typically offers low rates and greater financial security. However, they may also have overpayment or early payment penalties.
Variable rate mortgage
In France, floating rate mortgages are pegged to the European Interbank Offered Rate. This means that the exchange rate may fluctuate. One might assume that this automatically means a change in your monthly payments, but in France this usually results in a change in the overall length of your mortgage.
Interest only mortgage
If you are looking to buy property for a mortgage in France, this is one of the options you can consider. In fact, this means that you pay only the interest on the loan, and not the original loan amount. Your payments will be lower, but you will still owe the mortgage at maturity.
In France, it can be difficult for a non-resident to obtain an interest-only mortgage as it is only approved in rare cases where the applicant can prove that they have sufficient liquid assets to cover the entire loan amount.
Capped-Rate Mortgages
They work just like variable rate mortgages, but with a cap on the rate. This provides more financial security, but you are not tied to a fixed rate deal.
Mortgage rates in France
One of the main reasons why France is so popular for buying property is the relatively low interest rates on mortgages. The good news for buyers is that, according to some sources, rates are now at their lowest level since 1949. On average, mortgage rates in France range from 1.5% to 2.5%, although they were only 0.9%.
However, the rate you will be offered may vary depending on the loan amount, LTV rate, type and length of mortgage, property and your status of residence.
Approval Process
Unusually compared to other European countries, mortgage lenders in France generally do not conduct a credit check on applicants, instead they base the approval process on your financial situation.
This means you must pass rigorous debt-to-income ratio checks and provide extensive documentation to show you can afford the repayments. Later in this guide, we will look at what documents you will need to apply.
Here is the key thing to be aware of. To qualify for a mortgage in France, your financial obligations (including mortgage payments, rent or other loan payments) must not exceed 35% of your household income.
Other factors that determine eligibility include:
- Age – Some lenders only approve mortgages for people under the age of 75.
- Employment – preference is given to applicants with a permanent and permanent job.
- Insurance – You may be required to provide proof of life insurance, property insurance, and possibly other policies, depending on your situation.
- Property – Lenders look at the age, condition, and resale potential of a property when processing applications.
How much can you borrow in France?
French banks are just as interested in mortgage loans for foreign buyers as they are for French citizens. A typical French mortgage allows the buyer to borrow between 70% and 80% of the value of the property. Some French mortgage brokers limit themselves to only 50% for non-EU citizens.
A feature of French mortgages is the legal requirement that all of your liabilities, including rent, mortgages and other recurring expenses, must be no more than 30% of your family’s net income.
If your total mortgage payments exceed 30% of your household income, French banks cannot provide further credit.
Thus, the amount you can borrow in France is limited by both the value of the property and your income. If you are over 65 years old, banks do not take into account earned income; only passive income or retirement benefits are taken into account.
The cost of obtaining a French mortgage
French lenders typically charge a processing fee (frais de dossier), which can be a fixed fee or a percentage of the mortgage loan amount. The associated administrative fees for setting up a French mortgage include the following:
- Commission for the creation/organization 1%, minimum 350 euros (plus VAT). This can vary, so there’s a chance your mortgage broker can negotiate this.
- Lenders may require an appraisal survey, which usually costs 250 euros.
- Notary fees can be around 6–8% for used properties and 3–5% for new builds or properties less than five years old. Notary fees are set by law for many aspects of a real estate transaction.
Although French banks provide credit to foreign buyers, they may have some additional requirements.
To get the best French mortgage rates, French mortgage lenders can ask non-residents to open a savings account with a minimum deposit equal to at least 24 mortgage payments. For example, if you received a €100,000 mortgage with a fixed rate mortgage in France of 1.5% for 10 years, you may need to lock up capital of around €15,000.
An additional legal requirement to obtain a French mortgage is to purchase a life insurance policy equal to 120% of your mortgage, with the name of the lender as the beneficiary.
Individual lenders may also require health and disability insurance policies and may ask borrowers aged 50 or older or those borrowing more than €150,000 to undergo a medical examination.
Many lenders also ask the borrower to obtain proof of property insurance and any improvements associated with it.
Requirements for obtaining a French mortgage
When applying for a mortgage loan, you will need to provide the following documents:
- copies of the borrower’s passports;
- confirmation of income;
- self-employed persons will be required to submit a set of audited financial statements covering three years;
- bank statements for the last three months;
- a valid lease agreement;
- asset report;
- a executed contract of sale (for the actual offer of a mortgage, and not for a preliminary commitment);
- if the property is new or in need of refurbishment, written estimates or invoices from registered dealers in France and copies of their insurance certificates;
- if new improvements are to be built on the property, the title deed or a preliminary contract for the sale of land, a building permit, and a building contract and plans;
- a title deed or a loan document with a full repayment schedule if the property is to be financed by a remortgage or equity issue.
French mortgages are only available with a real estate purchase contract. However, in some cases it is possible to obtain a certificate of commitment (letter of pre-approval) for around EUR 350 plus VAT from the mortgage lender. This usually allows you to negotiate with the seller and should be valid for three to four months.
How to get a mortgage in France?
Applying for a mortgage in France is relatively easy and very similar to the process in other countries.
It may be worth consulting with several mortgage lenders to see which one will give you the best mortgage interest rate. There are many banks in France offering mortgages to foreigners, as well as specialized mortgage providers focused on providing mortgages and services to foreigners.
As a buyer, you can request a formal mortgage offer from a lender of your choice once the completed sales contract has been signed by the seller and buyer and the bank is confident that the buyer can afford the loan (by French standards) and the value of the property supports loan request.
Once accepted, the mortgage will be submitted for underwriting for final approval by the lending institution.
Tax considerations for a French mortgage
There are three main forms of mortgage-related tax relief that you can receive when paying taxes in France.
One is to deduct mortgage interest from rental income. If you buy French property and rent it out for all or part of the year, your mortgage interest is a direct business expense in relation to your rental income.
Thus, for French citizens and expats with a valid residence visa, property income tax is applied to rental income minus interest payments. However, for non-residents, the tax liability on rental income is reduced to 25% of the tax for residents.
French law also allows mortgage interest to be deducted from French inheritance tax. This can be a significant responsibility for those who inherit your property.
Inheritance tax laws are complex and highly situational. Before buying a French property or taking out a mortgage, it is recommended that you speak with a qualified tax advisor.
The third form of mortgage-related tax relief only applies to those subject to French property tax.
New property tax rules introduced in January 2018 mean that anyone who owns property worldwide worth €1.3 million or more must pay an additional tax rate. Non-residents only have to pay for real estate in France.
The rates depending on the value of the property are as follows:
- EUR 800,000–1,300,000: 0.5%
- EUR 1,300,000–2,570,000: 0.7%
- EUR 2,570,000–5,000,000: 1%
- EUR 5,000,000–10,000,000: 1.25%
- EUR 10,000,000 and more: 1.5%
Those who qualify for the tax can offset the value of their main home by 30% if they live in it.
