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The Ins and Outs of French Mortgages

Guide to mortgages France

Mortgages in France can be obtained for the purchase of new-build or existing properties. Mortgages issued by French banks are issued in Euros and secured against the residential property located in France.

 

Types of mortgages 
A variety of mortgage products are available.  Both interest-only and repayment mortgages can be arranged on a variable or fixed-rate basis, or a combination of both. Terms can be from 6 to 40 years, however loans must be repaid by the age of 80.  Many of the products do not have early redemption penalties.

 

Eligibility & criteria
French mortgages are full status and therefore an exact accounting and proof of all income and expenses are required to submit an application to a lender.  The maximum loan to value available is 90% of the purchase price, although ordinarily it’s 80% of the price. That amount can include the real agent’s fees but not the notaire fees on the purchase.

French lenders assess eligibility on the applicant’s capacity to repay the mortgage.  As a guideline, your existing monthly expenses as well as the monthly repayment on your new French mortgage should not exceed 33% of your gross monthly income.  A percentage of any rental and investment income you receive can be considered.  Mortgage, rent, personal loans and maintenance commitments are all considered as outgoings.

French lenders will not consider lending to UK or US companies, but it is possible to create a Société Civile Immobilière, or SCI, a French company created expressly for the purchase of a property.  This type of purchase may be advantageous for groups buying together and can minimize French inheritance issues.

 

Documentation required by the lender
Under French law, lenders are required to have full documentation proving that the borrower can afford the mortgage repayments, and you will therefore be required to submit a number of supporting documents.  Please see below for a summary of what will be required.  A detailed list is compiled based on your situation and sent to you with your personalized quotation.

You will need:

  • Proof of identity & residence
  • Proof of income & outgoings
  • Bank statements
  • Property details

 

Timeframe
An Agreement in Principle can be obtained from a lender once all of the necessary documentation has been submitted.  This takes approximately five working days.  However, for loan amounts in excess of €750,000 this usual take longer.  An agreement in principle from a French bank can make your negotiations on a property purchase more successful as the seller can be sure you have the finance in place to complete your purchase.

We would recommend that you allow a minimum of eight weeks from application to the lender to completion. If the timescale is tighter than this, it is possible to purchase in cash and arrange a post finance mortgage on similar terms.

 

Costs of setting up a French mortgage 

Bank’s arrangement fee: typically 1% of the loan amount, up to a maximum of €2,000.  Should the lender wish to do a valuation – often the case with Paris real estate – this will be covered by the arrangement fee.  This fee is deducted by the lender from your French bank account once the loan is complete and the funds have been issued.

Additional notaire fees:  Your notaire will provide you with a breakdown of taxes and fees payable once the purchase is finalized. If you take out a French mortgage on the purchase, this adds about 1% to the notaire fees to cover the cost of the required registration of the mortgage with the national land registry.

 

Life insurance
The majority of French lenders require the borrower to have life insurance with the lender as the beneficiary to cover the remainder of the mortgage debt in the event that the borrower passes away before the mortgage has been fully paid off. If you will not be willing to take out life insurance cover for your loan, you specify this when applying for a quotation to ensure you are quoted suitable products. Some lenders will allow a buyer to assign an existing policy to it, while others will not.

 

Buildings insurance
Buildings insurance must be in place for the loan to be issued.  A mortgage broker or lending bank can refer you to a specialist overseas insurance provider.

 

Bank account
You will need to open a bank account in France before the loan is completed, from which your mortgage repayments will be debited.  The lending bank may provide you with an account, but not in all cases. It’s a good idea for a French property owner to have a local bank account anyway, to set up automatic payments for utilities, building fees and other ongoing expenses of owning property.

 

Payment of your French mortgage 
Missing a mortgage payment in France, like anywhere, may have serious consequences for the borrower and the property. To avoid missed payments or other delays, some foreign currency exchange providers offer a renewable 12- to 24-month regular payment plan.  The exchange rate is fixed at the start of the plan, and the agreed amount will be debited from your foreign bank account and sent to your French account each month, where it will be debited by the lending bank. This service can give you peace of mind that your French mortgage repayments will be met automatically each month.

 

Completion
Mortgage funds will be released by the lender directly to your notaire’s escrow account to complete the property purchase.  You do not have to be present at completion and can give Power of Attorney if necessary; your notaire will be able to discuss this with you in more detail.

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