France is one of the most popular destinations for property investment. With 13 regions, all boasting a unique appeal and flavour of French culture, it isn't hard to see why! The beauty of France is that those who love the good life are really spoilt for choice. Will you choose that sleepy village in the South West? Or perhaps you're more drawn to the bustling nature of a large city?
Whether you have your heart set on a quiet countryside home or a luxury villa on the Côte d'Azur, in this article we will outline the basic information regarding French mortgages.
The Options
The majority of people will purchase a permanent or a second home in France with a mortgage. There are two principal mortgage options:
1. Borrow in your home country (through specialist lenders for overseas properties or by remortgaging with your existing lender)
2. Obtain a mortgage in France via a French bank or French mortgage brokers
There are advantages and disadvantages to both of these options and it is always important to seek professional advice from a qualified mortgage adviser who can assess your personal situation.
Whilst the majority of mortgages are repayment, French banks are more increasingly offering 'Interest Only' options. The length of the mortgage plan can vary from 5 to 30 years and deposits range from paying as much as possible to nothing (100% mortgage). Most French mortgages will offer you the choice to have either a fixed or a variable rate mortgage.
Another aspect to consider when weighing up mortgage options, is whether you intend to develop the property for rental purposes. There is a rising number of leasehold and buy-to-let mortgage options and French mortgage brokers are very keen about the profitability of such an investment.
If it is your intention to buy a property and subsequently rent it, it is important to be aware that a French mortgage would enable you to offset the interest on your mortgage payments against the rental income (for tax purposes). This would not be possible if you opt to remortgage your UK property instead. If you plan yo rent your French home for income, be sure to check that a UK based lender will allow this as part of a remortgage.
Euro or Sterling?
It is important to be aware of the current currency exchange rate when buying a property in France, especially if you live in the UK and all of your earnings and savings are in Sterling.
If at some point in the future you decided to sell the house and wanted to change the currency back into Sterling, your financial return will be dependent not just on the French housing market in your region, but also on the exchange rate at the point of sale. This might work in your favour or it might not. There is a risk of the currency rate working against you and any financial gain on the property value might be lost. Equally so, if the exchange rate is positive, it might offset any property losses. These are the fundamental currency factors to consider when deciding where to borrow.
If you opt for a UK mortgage to purchase a French property that is bought in Euros, you might find that you are liable to pay a fixed amount (Sterling mortgage) for a declining value asset (the French property) if French property values were to decrease. However, if you choose a mortgage with a French bank (Payable in Euros) and you earn your income in the UK, you will be faced with the problem of the unpredictable currency market when converting money. To resolve this issue, you could buy currency at a fixed rate for several months at a time, therefore regaining some control of your budget.
Interest Rates
When taking out a mortgage, it is important to be aware of the additional costs. Be sure to compare French and UK lenders regarding the amounts payable in interest each month.
