Everything You Need To Know About The Mortgages in France

There are a number of mortgage products available to individuals, interest rates vary considerably dependent not only on the type of mortgage- fixed or variable rate, length of loan term, etc, but also on your personal circumstances.

Personal circumstances are usually associated with level of risk and can make a difference of up to 1% in the proposed loan rate . The clearer you are, to the lender, about what you intend to do with the mortgage will also make a difference in the loan rate offered.

In France Mortgages are more strictly controlled than in the UK. It is the norm that French banks will wish to control the total spending of the loan.

For example, if a bank was to loan 100.000 euros for a new build project, it would pay it out in instalments (You will only be liable for repayments on the sum that is released at each stage).

If you were to purchase a piece of land, it would pay out the cost of the land on the signing of the ‘compromis’. It would then pay out on the laying of the foundations, construction of walls, roof, etc, and continue in this way until completion, usually this would require signed quotes beforehand.

There are obvious implications for flexibility with this type of approach in spending ‘your money’.

Everything You Need To Know About The Mortgages in France

Equity Release Mortgages A way around this is to obtain an ‘equity release mortgage’ whereby the money is paid to your notaire who then pays it into your bank account.

It is done this way so that a ‘charge’ can be added to the property deeds. You will also have to pay between 1-3% of the total loan to your notaire.

You are then at liberty to use the money as and where you wish. Most lenders do not offer this type of mortgage, most notaires will not know of this possibility either as they are still rare in France.

To date I have only found one that consistently offers an equity release mortgage, again though this will offered at a higher loan rate than a ‘standard French’ mortgage, by as much as 1.5%.

In France it is possible to obtain a mortgage of 3 times your annual income. Often this is strictly interpreted to also take account of disposable net income and any financial obligations.

Mortgage Tax Breaks

Since the last election it is now possible to deduct 20% (40% in the first year) of mortgage interest on new mortgages in France, for your principle residence, in the form of tax relief, for the first five years of the mortgage. There are ceilings but for a couple with two children this should allow 1600 – 2000e a year on a 100.000e mortgage.

Flexible Rate Mortgages

If you were to opt for a flexible rate mortgage, your monthly payments would still be fixed, even if the rates were to rise, it is the length of the repayment period that would increase, up to a maximum additional five years, should this term be exceeded then monthly payments would rise. With a flexible rate mortgage, there are usually no penalty clauses for early partial or complete repayments.

Fixed Rate Mortgages

If you were to opt for a fixed rate mortgage, the monthly repayments and the length of the loan period are fixed. For early repayment there will usually be a penalty charge of 3% of the total outstanding loan.

Loan length and Capital Gains Tax

Unless a property is your ‘principle residence’, if you were to sell it before owning it for 15 years you are liable for capital gains tax. If you were to take a mortgage for a 15 year term at the end of this period you would have no capital gains tax to pay, for some people this is an excellent way to build up their pension fund whilst renting out their properties!

Mortgages for New Build

New build properties will have reduced notaires fees, usually 2.5% instead of the normal 7.5%, this may increase the attractiveness for any potential buyers, if you are building to sell.

New builds meeting certain ecological standards may qualify for additional tax breaks, including exemption from tax fonciere for a 30 years period.

There is also the possibility of tax relief for environmental or energy efficient measures supplied and installed by artisans (on the same invoice).

I have contacted several regions in France to find out if there are special build zones or local incentives for new build residential properties. There are none. Some communes have residential building land for sale but offer no more value than private or company sales.

Increasing Your Tax Efficiency

If you are fiscally resident in France and build a property to sell on, the capital gains tax will be applied at 27% following any sale. If you are fiscally resident in another country the capital gains tax will be levied at 16%.

If you have a mortgage on your principle residence and then the property is sold, and the loan repaid, the 20% tax relief will finish.

Under the current French taxation system, a more attractive proposition may be to build the property to rent out. If you were to rent out a property for less than 15.000e yearly you would qualify for a 40% tax relief

If you were to keep the property for 15 years, you would benefit from tax relief throughout and at the end of that period have no capital gains tax to pay.

It would be possible to obtain a further mortgage on the rented property to start an additional new build, although no mortgage relief will be applicable, if rented out for less than 15.000e, the 40% tax relief will still apply.

There is also the possibility that you could continue for each and every subsequent property. The 15 year capital gains tax rule will apply for all properties.

If you wished to have the details of the company offering Equity Release Mortgages, please contact within-france.com and they will be emailed to you on receipt of your request.

Satisfaction Bank

If you are interested in a standard French mortgage or a bank offering the usual banking facilities, but unusually in France with excellent customer service, please click on the following link.

This will provide further information and links to a bank that is now known to those of us fortunate to use it, as the Satisfaction Bank. If you are intending to open a bank account in France, you will not be disappointed, competitive but with the most excellent customer service we have yet found in France.