Although the process of borrowing money to purchase a property is roughly similar in both the UK and France, there are some differences between French and UK mortgages that purchasers should bear in mind.
The primary thing that a British buyer needs to understand is that UK banks are not able to arrange a mortgage that is directly secured against a property in France. The truth is that only French institutions have the authority to give this guarantee against French real estate. Consequently, prospective buyers need to finance the purchase through French banks. The criteria requirements that need to be met in order to qualify for a French mortgage are rather different to UK requirements.
French banks and lenders operate by the principle that the monthly French mortgage payment should not exceed one third of the buyers' gross monthly income.
Provided that this basic criteria is met, the underwriters will proceed to evaluate the application further. This will include making sure that the borrowers have a minimum sum left over on a monthly basis, and that their overall savings are sufficient to afford the capital outlay on the purchase.
Borrowers must submit a dossier of financial documentation to prove that they meet the criteria above, as well as completing the bank in questions' application forms.
Although you might think that raising finance is long-drawn out in the UK, the French excel at this by far! The good news is that French lenders allow for the majority of documentation to be sent to them via electronic form, which is a significant time saver.
The types of mortgages offered by French banks are similar to those available from UK banks.
Facilities are offered on either a 'Capital Repayment' or 'Interest Only' basis, and rates can be fixed, variable or capped. The interest rate payable for each mortgage is driven by the ‘Loan to Value’ (LTV) ratio.
Generally speaking, the greater the deposit that a buyer is able to put down on a purchase, the more competitive the mortgage deals available to them. When choosing which type of rate is best suited to you, be sure to consider how soon you want to pay off the loan. If you (the buyer) plan to keep the mortgage for the full duration of the term, a fixed rate might be a very attractive option in France. However, if you intend to pay the mortgage off early, a variable rate might be better suited to avoid financial penalties for premature redemption.
We hope that this introduction has helped to give an insight into the procedure of arranging a mortgage in France. Whether you choose to raise equity against your UK residence (in order to transfer the funds across into euros and buy the property outright) or you opt for a French mortgage, both options have advantages and disadvantages and it is well worth taking the time to consider both thoroughly.
