Most people buying a French property need to raise some type of mortgage finance to help them make their dream come true. Often, the Estate Agent selling the property will offer assistance, putting the buyer in contact with a local bank. The local bank will rarely be in a position to offer advice and guidance and the purchaser could end up with a mortgage but no knowledge of the French mortgage market.
Lack of understanding can be catastrophic for buyers especially if they assume that French mortgages operate in the same way as in their home country. Without professional help, buyers could end up having their mortgage application refused by the lender resulting in not being able to proceed with the purchase, or with a mortgage unsuitable for their needs.When choosing which French mortgage is the most suitable for you, it’s important to understand how property finance works in France. Here are the top three differences you should be aware of:
1. No Non-Status Loans
Self-Employed applicants often ask if they can apply for a non-status loan. This means that they would like to obtain finance for their property purchase without providing any proof of actual income or outgoings but this is not possible in France. French lenders are legally required to ensure all loans and mortgages are “affordable” for the borrower and therefore non-status loans are not available.
If you can’t prove your income, you should consider alternative means of finance as a French mortgage won’t be possible for you.
2. It costs money to register the mortgage
In almost every country, mortgage lenders charge borrowers to take out a mortgage in the way of arrangement fees. However, in France, there is an additional cost to arranging a mortgage which is the cost of the guarantee. Each mortgage in France is registered and a guarantee is taken out by the bank to protect their funds.
A few different types of guarantee exist but non-resident borrowers are seldom able to choose the type of guarantee the bank will take. It is the notary that will collect the funds from the borrower at the same time as the sale completes in order to register the guarantee.
The guarantee is registered via the notary and when the mortgage is paid off the guarantee needs to be de-registered. The registration and deregistration both have associated costs, but usually it’s in the region of 1.6 – 2% of the sum borrowed to register the guarantee and starts at a few hundred Euro to remove it.
3. Re-Mortgage Market is scarce
It’s important to get the right mortgage from the outset as the re-mortgage market in France is practically non-existent. Switching lender after an initial short fixed term period isn’t part of the culture here as most French mortgages are fixed or long term capped rates. Early redemption penalties are usually applicable in the case of a re-mortgage with a competitor bank. These penalties (usually 6 months interest or 3% of the outstanding capital) added to the cost of de-registering the old mortgage and re-registering the new mortgage via the notary mean that borrowers can be left with a hefty bill in the event they need to re-mortgage.
Just as you would find a specialist to advise you on property law, you should find a specialist to advise on property finance and to improve your chances of obtaining a French mortgage especially in the current tumultuous times. A French mortgage broker can help you understand in detail what’s on offer from a panel of lenders and will prepare your application in a professional manner in order for it to be understood by the lender.