This article will speak about getting mortgages in France as an expat.
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Mortgage – A ‘Mortgage’ is a type of loan that is provided by a mortgage lender/bank, which allows a person to buy a house or any other real estate property.
Even though it is possible to take a mortgage with an amount that would cover the total cost of the property, in most cases, people tend to have a loan amount of 80% of the entire value of the property.
There are two types of mortgages, which are ‘Fixed-rate mortgage’ and ‘Adjustable-rate mortgage (variable rate)’.
‘Fixed-Rate Mortgage’ – Fixed-rate mortgages allow borrowers to have a loan with a fixed interest rate over a term that may typically be around 15 – 30 years.
While having a fixed rate of interest, the term of the mortgage is inversely proportional to the monthly payment.
This means, if the term of repayment is shorter, then the monthly payment due that has to be paid will get increased. However, if the person opts for a longer-term, he or she would have to pay more money as the interest rate gets increased.
One major benefit of a fixed-rate mortgage is that the borrower can maintain balance on their payments as they would have to pay the same amount until the remaining amount gets cleared.
If you are a person looking to make a fixed amount of payment every month, then the fixed-rate mortgage might be advantageous for you.
‘Adjustable-Rate Mortgage’ – Adjustable-rate mortgages offer interest rates that are subjected to a change depending on the remaining loan amount.
Depending on factors such as an increase in the market rates, the interest rates can fluctuate, while changing the remaining amount that has to be repaid by the borrower.
variable-rate mortgages (adjustable-rate mortgages) are commonly seen in most parts of Europe.
‘Principal’ – The principal is the term used to refer to the total amount of loan provided to the borrower. If a person takes an amount of $200,000 mortgage to buy a house, then this $200,000 is said to be the principal amount.
In most cases, lenders require an amount of 20% of the total amount of the house to be paid upfront as a down payment.
For example, if the $200,000 discussed above equals to 80% of the value, then the person would have to pay a down payment, which is $50,000 (making the 100% amount to be $250,000).
‘Interest’ – The interest is the percentage that will be added to the repayment of the mortgage amount as a profit for the lender. In simple words, interest is the money earned as a profit by the bank or lender for lending the money to the borrower.
‘Taxes’- Mortgage payments will generally include the property tax, which has to be paid by the individual being a homeowner. On the other hand, municipal taxes are estimated depending on the value of the property.
‘Insurance’ – Mortgages also consist of homeowner’s insurance that is needed by lenders to take care of any damage done to the home (which is the collateral) along with the property inside it.
Mortgage insurance is also covered, which is usually required if the individual makes a down payment less than 20% of the home’s cost. This insurance is specifically designed to offer protection to the lender in case the borrower defaults on the loan.
France – One of the main reasons that a person would want to buy a property in France is because of its beauty and diversified culture. Some of the things that are famous in France are the Eiffel Tower, the Cathedral of Notre Dame, the Louvre, etc.
France is officially known as ‘French republic’ and ‘République française (in French)’ and the national language, as well as the official language, is ‘French’.
Having more than 67 million inhabitants, France consists of 93% French citizens and 7% foreign nationals. The major religions that can be seen in France are Christianity, Catholicism, Islam, etc.
The currencies of France are Euro and CFP franc, and by the time of writing this article (October 29, 2020) the value of Euro and CFP franc are as follows.
1 Euro = $1.17 and £0.90
1 CFP franc = $0.0097 and £0.0075
Buying property in France – There are no restrictions for buying property in France in the case of foreigners. However, there are some difficulties faced by foreign buyers mostly due to the thoroughness of the French bureaucracy.
Mostly, the documents required are passport, birth certificate, and photocopies of the individual who wants to buy a property. However, in the case of foreigners, a visa or a carte de Sejour might also be required.
Even though a person does not necessarily need to have a French bank account, having one might expedite the process. A French bank account can come in handy while making the purchase and for dealing with bills and taxes after that.
Most banks need a French address to open an account for an individual, whereas, some might even require the person to have their account as the primary bank account (which can’t be accessed by foreigners).
People who are transferring huge chunks of money are required to submit some important documentation in order to cope with the anti-money laundering rules.
For example, if a person sold their property and made money, then he or she would be asked to submit a copy of the sale agreement or bank statements from the main bank account determining the income and savings of that person.
Coning to finance, people who are residents as well non-residents of France (even non-residents of Europe) may be able to qualify for a mortgage in France.
However, the process of acquiring a mortgage or qualifying for the eligibility criteria can be somewhat difficult when compared to the residents of France. Banks and mortgage products available to a non-resident are also limited.
Non-residents who purchase a property don’t have to deal with the French taxes, except for the taxe d’habitation and taxe foncière, which are required to be paid on the property.
These two taxes can be avoided if the person moves over to France for a full-time basis. Another thing that needs to be considered by non-residents is that people having real estate assets with a value of more than €1.2 million would have to pay the wealth tax, which is known by the name of ‘Impot sur la fortune immobilère.
To have a more detailed overview of the taxes imposed on expats in France, have a look at this article on our website.
French real estate – The housing market in France picked up the pace in the year 2017 after many years of lack of growth. It could be considerably observed in the prices, which increased up to 4.2%.
Prices, however, differed on the basis of the property’s condition (whether it is a new property or a resale property), especially in major cities.
In cities such as Marseille, a new property can be 50% more expensive when compared to resale property. Whereas, in Paris, the difference is only about 26%.
It should be taken into consideration that there are some financial benefits to buying a new property in contrast to buying a resale property. For example, no agent fees and low notary’s fees could save an amount of up to 11% of the property’s overall price.
Cost of living in France – Given below is a table providing the average costs of living in some of the major cities of France.
|Monthly Rental (single bedroom flat)||€1,100||€570||€590||€770||€610|
|3-course meal for 2 people at a medium-priced restaurant||€50||€40||€50||€60||€40|
|Monthly expenses for a family of 4 people, without including the rent||€3,120||€2,270||€2,690||€2,800||€2,400|
No need to say that France is among the wealthiest countries in the world.
According to some research conducted by OECD (Organization for Economic Co-operation and Development, it has been stated that the average household disposable income is around $31,100 per year, which is a little bit over the OECD average.
Paris is known to have higher costs of living, whereas, living in a city like Marseille could involve low costs.
Mortgages for expats and foreigners in France:
Is it a good idea to buy a property in France? – As discussed earlier, the French property market plays a crucial role in Europe’s property markets, as it is one of the high performing property markets in Europe.
Having lower mortgage rates encourages more expats to own a property in France.
Data obtained from Groupe Credit Agricole represents that the sales volume of the properties in France experienced a slight fall in the year 2018, even though having a significant increase in the prices in some specific areas.
For example, the overall prices of properties in France increased by 1.73%, whereas, in Paris, the prices went as high as 7%.
Property transaction fees can be around as high as 10% – 15% of the purchase price of the property. Capital gains tax is also applicable when a person sells the property (making it altogether 35% – 40%).
These factors are very crucial for people planning to stay for a period of fewer than 5 years. It is not possible to expect an offset in the costs in such a short time period.
How much can be borrowed? – When it comes to lending mortgage loans, French banks treat expats in the same way they treat French citizens.
On average, a typical French mortgage will allow an individual to borrow an amount ranging up to 70% to 80% of the overall value of the property.
However, some French mortgage lenders might limit themselves and offer a mortgage loan of only up to 50% of the value of the property, especially for non-EU nationals.
French mortgages have a legal requirement that all the liabilities of a person should not be more than 30% of that specific person’s net household income.
If an individual’s mortgage payments exceed 30% of their household income, then the French banks won’t be able to extend further credit.
People who are older than 65 years of age won’t be able to include the income that has already been earned by them. Anyhow, they can include any sort of passive income or benefits earned from retirement.
Therefore, the amount that can be borrowed by a person is restricted by the value of the property as well as their income.
How much does it cost to get a French mortgage? – Lenders in France usually charge a set-up fee, which is known by the name of ‘frais de dossier’. This can either be a fixed value or a percentage of the mortgage.
The administrative fees for obtaining a French mortgage are listed below:
- 1% origination or arrangement fee, which should be a minimum of €350 (plus VAT). This fee is variable, which means a person can be able to negotiate with their lender to reduce this fee.
- Lenders also require a valuation survey, which generally costs around €250.
- Notary fees are around 6% – 8% in case of a resale property, whereas, they range between 3% – 5% in case of a new property (which is less than 5 years old).
These notary fees are fixed by the laws based on various aspects of a property transaction.
Mortgage rules for expats/foreigners – Even though French banks offer credit to foreign individuals, there are some additional requirements that are to be fulfilled by the individual.
To get the best available French mortgage rates, an individual might be asked by the mortgage lenders to open a savings account with a deposit amount equal to 24 mortgage payments.
Along with that, an additional legal requirement for acquiring a French mortgage is to buy a life insurance policy which is equal to 120% of the mortgage, while naming the lender as the beneficiary.
If the person who wants to get a mortgage is having an age of more than 50 years or borrowing more than €150,000, then he or she would have to take a medical exam. Moreover, some individual lenders might even require a health and disability insurance policy.
The majority of the lenders would even request the borrower to get proof of insurance on the property, and any other improvements made after that.
Requirements – Let us have a look at the requirements for getting a French mortgage. This information consists of the documents that are to be submitted by an individual while applying for a mortgage.
- A copy of the passport of the person who is applying for the mortgage.
- Income proof
- Audited financial details for a time period of three years, if the person acquiring the mortgage is a self-employed individual.
- Bank statements (past 3 months).
- The current rental agreement of the individual.
- Statement of assets and liabilities.
- Sale agreement of the property. This should be regarding the actual mortgage offer and is not intended for a preliminary commitment.
- If the property is new or is to be renovated, estimates (hand-written) or invoices from tradesmen registered in France along with the copies of their certificate of insurance.
- In case of new improvements or upgrades being made on the property, the individual has to submit a ‘property title or preliminary sales agreement for the land’, ‘building license’, ‘building contract’ and ‘plans’.
- The title deed or the loan deed should also be submitted with a full repayment timetable if the property has to be financed with a remortgage or equity release.
French mortgages are only made available along with a property purchase agreement.
Anyhow, in certain cases, it could be possible to get a certificate of commitment from the mortgage lender (pre-approval letter) by spending an amount of around €350 (plus VAT).
This pre-approval letter will be valid for a time period of 3 – 4 months and will be helpful for an individual to negotiate the price of the property with the seller.
Applying for a mortgage – Applying for a mortgage in France is a simple process, which is similar to the process in many other countries.
You can consult a few mortgage lenders to get the best quote with an interest rate that suits you. In France, many mortgage lenders offer mortgages to foreigners.
There are some specialized providers as well, which will offer expat mortgage services.
Being a buyer, you can be able to request an official mortgage offer from a mortgage lender after the completely filled sales agreement has been signed by the buyer and seller.
The bank or mortgage lender will also have to be assured that the buyer is able to afford the loan amount (based on the French standards) and property’s value should be supported by the loan request.
After completing all this process successfully, the mortgage will further proceed for final approval by the mortgage lending institution.
Types of French mortgage credits – There is an availability of three types of loan guarantees or securities in France, namely ‘Conventional’, ‘Priority Lien’, and ‘Institutional Guarantee’.
A conventional mortgage is a concept familiar to international buyers, whereas, residents know well about the other types of mortgage credits
‘Conventional’ – Conventional mortgages are usually dealt with by a notary, where they charge a fee of around 2% of the mortgage amount to take care of completion and registration of the sale documents.
The notary also makes sure that all the terms of the previous mortgage on the property have been satisfied and the requirements of a new mortgage have been fulfilled so that the new buyer won’t have to face any difficulties.
These notary fees are generally added along with the administration fees that are charged by a mortgage lender.
‘Priority Lien’ – Most people opt for this Priority Lien because the notary fees for these services are lower (only 1%) as there is a necessity for paying stamp duty.
Everything is almost the same as the conventional mortgage, except that the mortgage basically has the main priority among all other charges applicable to the property.
There is even a possibility of acquiring this mortgage for a loan period as high as 50 years, which is often rare. Adding to that, this is only available on old properties (resale properties).
Moreover, the individuals are only allowed to borrow an amount that is equal to the value of their property and not more than that (for example, renovations).
‘Institutional Guarantee’ – This is the most recent mortgage option made available by the French banks. This allows an individual to get a loan based on an institutional guarantee known as ‘la société de cautionnement’, which is operated by a group of organizations.
The basic concept is that the risk of mortgage default is distributed among all the lenders taking part.
While making use of this system, the mutual funder acts as a guarantee for the funds, while the borrower pays a guarantee fee, which is based on the amount borrowed.
In this case, the borrower won’t have to pay the mortgage registration costs and fees. This means the costs involved in the transaction are an arrangement fee of less than 1% along with the cost of guarantee ranging between 1.5% – 2%.
In some cases, 75% of the amount that has been paid as the cost for setting up the guarantee will be repaid to the individual. Henceforth, this kind of mortgage is generally the cheapest and advantageous for short-term loans.
Mortgages available in France – France has a significant amount of experience in the mortgage industry when compared to other countries, especially when it comes to dealing with foreign buyers.
However, product variations might be few than in other countries.
‘Interest-only mortgages’ – Interest-only mortgages have gained a lot of popularity in France. When it comes to the individuals who want to rent out their property, the lack of buy-to-let mortgages made it even better for the interest-only mortgages.
As the mortgage interest is deductible against the rental income, the monthly payments of an individual can reduce the amount by a lot.
Along with the interest-only mortgage, the individual can also select an annuity that can pay off the principal amount at the fulfillment of the term.
‘Fixed-rate and adjustable-rate mortgages’ – we have discussed the fixed-rate mortgages and adjustable-rate mortgages at the beginning of this article.
‘Bridging loans’ – people who want to borrow in France are also provided access to bridge loans. These are specifically designed for the buyers, who are ready to buy a property but are waiting for the sale of their existing property.
Such loans are short-term loans, which can be extended for a time period of up to 2 years.
Taxes for French mortgages – individuals are offered three main types of mortgage-related tax relief while paying taxes in France.
The first one is the deductibility of mortgage interest on the rental income. If a person purchases a French property and rents it out, the mortgage interest is a direct business expense against their rental income.
Therefore, for the French nationals or expats having a valid residency visa, the taxes on revenues of the property are only applicable to the rental income make the interest payments lower.
Anyhow, the tax liability on the rental income for expats is also lowered to 25% of the rate usually levied on residents.
Secondly, Mortgage interest payments are also deductible against the French inheritance tax. This can be a significant sizeable liability for the people who inherit an individual’s property.
The inheritance tax laws are complicated and vary depending on the situation. Taking advice from a professional tax advisor might be beneficial before buying a French property or getting a French mortgage.
Finally, the third type of mortgage-related tax relief is applicable to the people who are subjected to the French wealth tax.
According to the French wealth tax rules, any resident would have to pay an additional tax rate if he or she has a property (worldwide) worth €1.3 million or more. Expats are only subjected to this additional tax rate on the property owned in France.
List of French banks that lend money to expats – Let us now have a look at the French banks that offer mortgages to expats.
- BNP Paribas
- Agricultural Credit
- Crédit Lyonnais
- Crédit Mutuel
- Caisse d’Epargne
- Banque Populaire (requirement for filing bank statements for one year).
We have listed all the information on how to get a mortgage as an expat in France. If you require further information or assistance with this topic, you can contact us.
If you are in need of an expert financial advisor/wealth manager, you can avail of the best-in-class financial services offered by us (especially for expats) by clicking here.