Frequently Asked Questions
1 What are the main differences between a UK mortgage and a French one?
Mortgage types – Interest Only is now quite common in the UK but is rare in France, where Repayment Mortgages are predominant.
Duration – Whilst the average duration in France is around 15 years some lenders now offer up to 25 years. However this is still far from the maximum mortgage term in the UK.
Consumer protection – Stronger in France, giving rise to more formalism e.g. use of postal system for sending and returning offers and compulsory 10 day consideration period. It also makes lenders more demanding for their risk assessment, seeking more information and ruling out for example the possibility of self assessment mortgages, (see next question). However the positive side of this consumer protection allows buyers to recover their deposit if their mortgage application is refused.
Valuations or surveys – French lenders do not generally require full structural surveys as in the UK, although some lenders in France do arrange for valuations to be carried out for their own internal use.
That said – what do they have in common? At the end of the day we find the same principle of taking a legal charge on the property financed, and the fact that your home is at risk if you do not keep up repayments.
2 How much can I borrow in France?
Rather than work on an income multiplier, most French lenders calculate financial commitments (loans and rent) including the requested mortgage, as a percentage of stable net pre-tax income (not gross income). As a general rule the ratio should not exceed one third, but obviously this depends on the figures involved as the higher the income the higher the debt ratio can be. In fact, most lenders try to apply their rules with common sense and look at the actual amount of disposable income, not just the percentage.
As for loan-to-value, the usual maximum in France for non-resident buyers is 70% with some specialised lenders going up to 85%.
3 We are planning to buy a property in France and run a gîte business, but we wonder how does a bank decide how much they would lend?
Most lenders providing a dedicated service for non resident buyers in France only grant mortgages for residential properties (main or second homes). These may be used sometimes for holiday lettings but the underwriting is based on sustainable professional or retirement revenue rather than "gîte" income.
Raising finance to set up a "gîte" business in France is governed by different rules in both in terms of financial assessment and also consumer protection.
- The bank concerned would have to assess the viability of the business plan both in terms of the "gîte" location and also the applicants' experience (or lack of) in such activities. The percentage loan-to-value would also be a key factor and is unlikely to be as high as for residential mortgages.
- The loan if granted would probably be considered as a business loan to professionals and therefore would not be subject to the French consumer protection laws ("loi Scrivener") with for example the compulsory 10 day consideration period, even if you intend to live there. In this area professional advice from specialist lawyers and/or tax adviser is recommended, to help the applicants choose among different solutions for owner and professional status depending on their situation.
The applicants may still have the option to raise finance on their UK assets by using a sterling equity release mortgage, and find this quicker and easier. However two disadvantages of this are :
- a mismatch between the French euro based asset (the property) with its euro rental income on the one hand, and the sterling liability on the other.
- it may be difficult to claim relief for the UK interest payments in the French tax return which the "gîte" business would have to file.
Finally, as for which banks to approach, there is no simple answer but it would make sense to start with local banks close to where the "gîte" is situated.
BNP Paribas International Buyers specialise in financing residential properties only and do not currently finance properties which have or will have a commercial activity.
4 How do I pay my mortgage?
The monthly mortgage payments would be debited from your bank account.
Having a bank account in France would prove very useful to pay the household bills for your French property (electricity and gas for example), receiving any rental income in France or for paying any French tax linked to being a home owner in France.
To make your life easier, we have negociated preferential conditions with a UK leading foreign currency provider to help you make regular transfers to France from your UK bank account.
It will enable you to transfer every month a sum of money from any bank account in the UK to France. This sum will be debited in sterling from your account in the UK, converted into euros at a highly competitive exchange rate and transferred to your bank account in France.
Should you require any information on foreign exchange transactions and the conditions applicable thereto, please contact your mortgage adviser.