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Mortgages and Other Financial Issues

France - Mortgages and Other Financial Issues

There are a number of fees involved when you take out a French mortgage. You need to have a deposit for the property, pay a bank arrangement fee and cover the costs of hiring a notary. The deposit that is payable varies and the banks will take a number of factors into account before determining the final figure. These include the residential status of the applicant, their nationality and which country they pay income tax in. Those who pay tax in France may be able to obtain a 100% mortgage. If you are from the UK or any other part of the EU you must have a minimum deposit of 15%. Those from any other country will be expected to pay a minimum deposit of 20%.

The bank arrangement fee applies to all mortgage applicants and most banks charge a figure of 1% of the loan amount, but many will cap the charge at around €1500. Each bank is different and there are a number that do not cap this fee, so you could find yourself paying out a lot more. Notary fees are normally around 8% of the purchase price of the property but the cost is lower if you are buying a newly built property. You should also be prepared to pay a separate amount for the property registration fees.

When calculating the amount that can be lent to a person, the banks are only permitted to use a third of a person’s monthly income as the maximum amount that can be repaid each month. This third will also take into account any other debt such as outstanding loans and the cost of life insurance to cover the loan. In order to qualify for a loan you need to ensure that your income is high enough to cover the mortgage, that you have life insurance in place and that the valuation of the property is adequate. The bank will value the property and there is not normally a charge for this service. This is just to ensure that the seller is not overcharging for the property. The value has to be accepted by the bank. Mortgages can only be given on property that has been built for human habitation. If you are intending to buy a barn for conversion it will not qualify for a mortgage.

There is a great deal of documentation which is needed in order to obtain a mortgage in France. The lender is under a legal obligation to ensure that the borrowers can afford to make the repayments. The documentation required includes the application form for a mortgage, the life insurance documentation, a copy of the ‘compromis de vente’ signed by both the buyer and the seller, personal identification information such as a passport, birth certificate and marriage documentation, proof of income such as a number of payslips, tax returns or pension payment information and several months worth of bank statements to show that the borrower can fund the deposit. If you are currently living in rented accommodation you will need to provide a copy of your tenancy agreement. If you are intending to carry out renovation works the banks will also need to see details of your plans.

The file will be created by the bank and checked by an underwriter. The valuation is then carried out and a decision is made. If the application is declined then a formal letter is sent to the applicant so that they can claim back their deposit as part of the ‘get out’ clause of the ‘compromis de vente’. There are strict rules about when a mortgage acceptance should be signed and dated. There is a requirement for a 10 day cooling off period, but the maximum period is 30 days for the acceptance.

As in other countries there are different types of mortgages and you may need financial advice to determine which one is right for you. It should be noted that interest only mortgages are not interest only for the full term. The second phase of the mortgage will require you to make repayments for the capital too.

You are required to have buildings and contents insurance as well as the life insurance. This is to ensure that your property is covered from every aspect. In addition there are a number of taxes to take into consideration. Your legal position with respect to inheritance taxes should be established as married couples do not automatically inherit if one of them dies. This can be resolved by a lawyer before you make your application for a mortgage. There are property taxes which are payable to the local authorities once you become the owner and resident and capital gains tax is only applicable if the property is a second home when you sell it.

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