Financing your purchase
Posted by Admin 21.07.2010 | 0 Comments
IF YOU REQUIRE a mortgage to fund your French property purchase, you should allow yourself time to find a good deal. Having a mortgage offer in principle is a good position to be in when househunting. Remember too, that if you need a mortgage, it must be stated in the compromis de vente. And don’t forget to budget for agent’s and notaire’s fees, which generally add up to around 10-15% of the sale price (and, if required, survey, solicitor and mortgage costs).
To fund your French property purchase, you could:
-
Use cash from savings, inheritance etc (for all or part of the sale price).
-
Sell your UK (or other) property.
-
re-mortgage your UK property.
-
Get a French mortgage (euros).
-
Get a sterling mortgage (various high-street banks offer mortgages for foreign purchases).
-
Get an off-shore mortgage.
-
Use a bridging loan (short-term, high-cost solution).
If you need a mortgage, it may be advisable to contact a mortgage broker to discuss the options open to you. When comparing deals, bear in mind duration, administration fees, mandatory insurance and other costs.
There are various British banks with operations in France, such as Barclays and HSBC (paperwork can normally be supplied in English), as well as French banking services dedicated to English-speaking clients, such as CA Britline. France also has specialised institutions for borrowing, including Crédit National and Crédit Foncier de France.
At the time of writing – with low interest rates in France and the euro still relatively strong against the pound – a French mortgage is worth considering. This is becoming a more popular route for British buyers keen to avoid currency fluctuations and take advantage of lower interest rates in France. There may also be beneficial tax implications in securing debt against your French home.
The French mortgage market is more strictly regulated than that of the UK. The market is evolving though, and improvements in flexibility and availability of non-resident mortgage services through specialist overseas brokers is making it easier for buyers on this side of the Channel to take out a French mortgage.
Increasing loan-to-value ratios mean you can now find 95%, 100% and even 105% mortgages for those looking to borrow as much as possible. The French market has much tighter lending criteria than the UK, though, and lenders will consider your current income and debt before offering a mortgage.
Even if you were thinking of making a cash purchase, in times of less-than-beneficial exchange rates, it may make sense to take out a French mortgage, as it will minimise the amount of sterling you will need to transfer to France.
If you’re not fluent in French, a UK-based broker who specialises in French mortgages can advise you. Mortgage brokers are often able to offer more competitive rates than those advertised by the main lenders, and some offer exclusive products.
Most brokers are only paid the commission they receive from the lender, while some charge a fee to the borrower on top of this, to cover services such as advice, translating forms and liaising with the notaire.
Currency exchange
Fluctuating exchange rates can have a considerable effect on the actual price you pay for your property. If the pound strengthens against the euro in the time between signing the compromis de vente and acte de vente (i.e. first contract and completion), you will, in effect, pay less for your property. Sadly, the opposite is just as likely to happen.
Luckily, there are ways to protect against currency fluctuations.
-
Buying currency at the spot rate: you can buy all your euros as soon as you sign for a property, or even when you start househunting. By doing this, you fix the cost at the start. You can then put the euros into a French savings account and earn interest on it.
-
Forward buying currency: if you want to play safe, but don’t have all the money at the start (perhaps you need to sell your UK property first), you could buy a forward contract, whereby you buy the currency now at a fixed rate, but only pay a portion of the money upfront.
You can also protect currency fluctuations adversely affecting your monthly mortgage payments. You know where you are with a fixed rate mortgage, as far as the monthly euro payments go, but currency fluctuations will affect the amount you have to transfer each month from your UK account. However, some companies allow you to deal with this monthly instability by benefiting from commercial exchange rates, even for small amounts.
Article from 'French Property Buying Guide 2010/2011' from the publisher of French Property News magazine... available to purchase for £6.99 via www.subscriptionsave.co.uk/Frenchproperty