Mortgages - French Mortgage Deals

The range of mortgages offered by French lenders is extensive compared to what was available to borrowers this time two years ago.

The loan to value (LTV) offered to non-French residents has increased in the last two years – from 70% to 90%, or even 100% in some cases. The range of interest-only mortgages in France has also expanded, now offering periods of up to 15 years and in some cases mortgages on a fully interest-only basis.

In addition, the number of off-plan mortgages available on the market has also increased, as have the average mortgage terms and conditions of these mortgages. So, with all these options available, how does an investor or holiday home purchaser choose the right one for their purchase?

There are three important steps to choosing the best mortgage product for a French property purchase:

1) Finding a product that is available on your purchase type (e.g. off-plan property)
2) Finding a product that is available for your circumstances
3) Finding a product that meets your requirements.

Lender requirements
Not all lenders will offer mortgages on all types of purchases or for all individual circumstances. Some lenders don’t finance châteaux purchases, some offer special off-plan mortgages that release the funds in stages and others do not. Some only finance a certain quota of borrowers purchasing at any one off-plan development, while others have no restriction.

Each lender also uses slightly different underwriting criteria. Some focus on net rather than gross income and some take future rental income projections into account, while others won’t. The minimum supporting documentation required for some mortgages is also fairly extensive and may be beyond the reach of many.
So, while certain lenders might not be suitable for some borrowers, others may offer the same borrower an ideal mortgage solution.

Lender offers
Once a potential borrower has ascertained which lenders will finance their particular purchase, they can then choose between the products offered by these lenders. To get the most out of your mortgage, it is a good idea to rank the criteria in order of importance to you. Below is a list of categories to consider:

• Mortgage amount – are you relying upon securing a certain mortgage amount or can you remain flexible?
• Interest rate – would you prefer to take a smaller mortgage amount in order to secure a lower rate? Often in France, the higher LTV deals are offered on higher interest rates
• Mortgage term – do you want the longest mortgage term possible in order to reduce your monthly payments, or would you prefer to take a shorter term in order to repay the mortgage as quickly as possible? Some lenders will offer lower rates for shorter terms
• Mortgage type – do you require an interest-only mortgage to keep monthly payments low, or would you prefer a capital repayment mortgage in order to reduce your debt and pay less interest in the long term? There are fewer interest-only mortgage products on the French mortgage market, so as a result they tend to be offered on higher rates due to the lack of competition
• Early repayment charges – do you intend to repay the mortgage either partially or in full during the term of the mortgage? It’s worth bearing in mind that some lenders charge early repayment penalties in the first few years, even for variable rate products. Most lenders will charge an early redemption fee during the whole term of the mortgage for fixed rate products
• Life insurance – would you prefer to arrange your own life insurance policy or are you happy for the lender to arrange this for you? Borrowers with health issues may find that the insurance arranged by the French lender is expensive and a UK insurance policy would be more cost effective. However, lenders that allow borrowers to arrange their own policy may then charge slightly higher rates on the mortgage
• Deferred payment – if you are purchasing an off-plan property, how important is it for you that the mortgage payment is deferred during the construction of the property? Bear in mind that deferring the repayment of a mortgage, although easier on finances initially, is actually more costly in the long term.

Selecting options
Once the above categories have been ranked by importance, it will be easier to compare the mortgage options available and to select the product that best meets your needs.
While making this selection, it is important to compare the overall cost of each proposed product and not be tempted to simply compare the initial rate of each mortgage. Mortgages in France often include a discounted initial rate for the first three to 24 months.

When comparing these initial rates some products will appear much more attractive. However, if you dig a little deeper you will see that the margin to be used after this discounted fixed rate makes the overall rate, used during the whole mortgage,much higher than other products.

It is also important to factor in the cost of arranging the mortgage. The standard mortgage arrangement fee charged by lenders in France will be 1% of the mortgage amount. This is a one-off payment that is usually taken with the first monthly installment and can not normally be added to the mortgage amount. However, French lenders do not charge up-front valuation fees like in the UK – their arrangement fee covers the valuation cost.

Aftercare
Finally, if there is little difference in the rate/conditions between two mortgage products, a good way to choose between them may be to explore the level of customer service and aftercare available from each lender – your mortgage broker can assist with this. For purchasers of off-plan properties, which can often take time to complete, it’s a good idea to check if the preferred lender will renew their mortgage offer after the standard four-month validity period.

Katy Hepworth is the overseas mortgage manager at Assetz Finance Tel: 0845 400 6000 Email: frenchmortgages@assetz.co.uk  Web: www.assetz.co.uk/fm

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