Many British buyers are confused about mortgages in others countries, Sinclair Consultancy are experts in guiding you to the right decision for your foreign purchase.
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If you are buying a second home in France, there are three ways to raise the mortgage: against an existing UK property, providing there is sufficient equity; against the French property; or a mixture of both.
For most UK residents, raising capital against their UK property is the cheapest and most straightforward option. The funds are raised either by taking further borrowing on the current mortgage or by re-mortgaging to another lender and increasing borrowings that way. The fees involved are comparatively small and the process is comfortingly familiar. However, this option does rely on there being sufficient equity in the property, and some people are uncomfortable with the idea of using their family residence as security on a holiday home.
Raising a mortgage secured against the French property allows buyers to purchase a property without putting their main UK home at risk. The costs are higher and there is a risk that currency fluctuations could increase the amount being paid over a period of time, but it is an attractive option, with historically low interest rates. There can also be tax advantages if you let out the property.
Finally, raising money against both the UK and French properties is popular with purchasers who do not have a large deposit in savings or who want to keep their savings intact, perhaps to renovate the property. Basically, the deposit and costs are raised from the UK property, limiting the amount of equity, while the difference is raised against the French property.
The way in which banks assess mortgages varies slightly between lenders, with some having a higher minimum loan size or lower maximum loan to values. Overall, though, French lenders are much more cautious than British lenders. Banks generally consider loans from 15,000 euros, from between 65 to 85 per cent of the value of the property. The final percentage depends on a number of factors and varies from bank to bank.
French mortgages are not based on the UK model of income multiples: typically the calculation works on the principle that the total of the French mortgage payment, plus any UK mortgage or rent, plus any other long-term borrowings, should not exceed a third of the buyer's gross monthly income. As an example, if a buyer's UK mortgage was £300 per month and the proposed French borrowing was £200 per month, this totals £500 per month, so the buyer's gross pay would need to be at least £1,500 per month for the bank to consider the loan.
Mortgages are generally offered on a capital and interest method - in other words, repayment - and are granted over a 15- to 25-year period, depending on the bank and the amount borrowed. Traditionally, repayment has been the main method of lending, although some lenders are now offering interest-only options for the early part of a loan, reverting to capital and interest later on.
Both fixed rates and variable rates are common in France. Variable rates are usually based on the Euribor (European Inter Bank Offer Rate) plus a loading. The fixed rates available are generally more expensive than the variable option, but they remain popular as they offer greater certainty that the loan repayments will remain within budget. Fixed rates for the term of the mortgage are common in France.
Buyers can expect to pay between 8 and 9 per cent of the purchase price on fees and taxes. It is normal for the applicant to be charged a fee by the lender, which is typically 1 per cent of the amount borrowed, although this figure varies and is usually capped for larger loans.
Most banks also insist on a professional survey, the cost of which will vary depending on the value of the property (as in the UK). There will be an added fee from the notaire (notary) for registering the bank's charge, which sometimes does not appear on a basic quote. Notaire's fees work on a sliding scale, where purchasers can expect to pay 0.825 per cent on a purchase price over 16,800 euros. It is worth noting that VAT is also charged on these fees. Miscellaneous expenses in the form of charges for paperwork and so on do not usually exceed £500. Additional fees for bank charges can add up to approximately 2 per cent of the purchase cost.
The taxes de publicité foncière, or land registry taxes, break down as follows into a departmental tax of 3.6 per cent, a communal tax of 1.2 per cent and a further tax on the departmental tax which equates to 0.09 per cent of the purchase price.
There is a stamp duty to be paid but it varies according to the property being purchased. A UK buyer can usually expect to pay the equivalent of £200 on stamp duty.
Most lenders will insist that buyers take out some form of life/disability insurance. Buildings insurance also needs to be taken out to protect the lender's interest, as in the UK.
It is common to re-mortgage in the UK to raise money for a variety of purposes. This is not so common with French lenders, although some are starting to offer mortgages on this basis, allowing the borrower to take advantage of rising values and equity. However, generally speaking, if you think you will need additional funds later, it is better to raise these at the time of purchase, when it may be easier to obtain the finance. For example, if a buyer was to raise money for home improvements, most banks would insist on paying the builder directly on invoice, rather than allowing the borrower to handle the money. Even if it proves to be possible, the extra funds are likely to be more expensive than those raised for purchase.
There is a common myth that once a verbal offer is made on a property in France, there is a legal obligation to purchase it. Although this is arguably true to a degree, French mortgage law was overhauled in 1979 and offers a good degree of consumer protection, surpassing English law in some respects.
Firstly, the lender has to confirm the offer of finance in writing. This will contain similar information to that which would be seen on a UK mortgage offer, such as the lender's details, amount of loan, rate, product etc. Under the terms, the borrower is given a mandatory 10-day cooling off period before he/she can accept the offer. The borrower then has 30 days to confirm acceptance of the offer to the lender during which time, the conditions cannot be altered. It is worth noting that in the original agreement with the vendor there is a clause stating that the purchase will only proceed if the purchaser is able to find a suitable mortgage. Therefore, if he/she is unable to obtain finance, they are not legally bound to complete.
That being said, it must be shown that every effort has been made to obtain the finance and once it has been agreed, the purchaser is then bound to fulfil the contract. If the buyer has stated at the outset that no finance is required, however, he or she is no longer protected in this way.
”Never done a mortgage for me but came across John and Sinclair Consultancy a few years ago at a trade show posted his name on to clients of mine and they have been very pleased and to this day continue to use him - it all ways nice when you recommend a company to your own client base and it works out - . Thanks John,”
Mr G. Newton Abbot