It is never too early to get your finances in place if you are considering buying a dream home in France. Lending criteria in France are far more complex and restrictive than in the UK and the whole process can take quite a lot longer than most people expect.
It is also important to bear in mind that regulations play a role in limiting how much lenders can advance, which may surprise UK buyers who are more used to haggling about salary multipliers and the inclusion of a bonus as income.
So here are 12 tips to keep you on the right track:
Get provisional clearance of a loan before you start house hunting. Finding out how much you can borrow is a sensible precaution.
A euro mortgage or sterling? Do you understand currency risk? If all your income is in sterling and your loan is in euros, currency movements will affect the size of your debt.
Make sure you have a realistic deposit. Lenders in France look first and foremost at the quality of the lending proposition. In banking terms, this implies that clients are expected to put down at least a 20% deposit and to have a reliable income stream.
Check your total outgoings. Lenders arebound by regulations to consider the affordability of the loan. This may come as something of a shock to UK buyers, for whom the 100% mortgage and large salary multiplier are the norm. In France, lenders have to ensure that a client’s borrowings and liabilities do not exceed around 35% of net income.
Include all income in these calculations, even income from buy to let houses and other non-salary vehicles, all of which can help when presenting a loan request to the bank’s Credit Committee.
Interest only or repayment? French interest only loans are very different from the UK – generally, the contract is over a fixed term and only the first part is really interest only. After that, it becomes a repayment loan, but there are still big advantages to this option.
How old will you be when the loan is repaid? Just as in the UK, lenders do not like a loan to go beyond a client’s 65th birthday. There are some exceptions to this, but as a rule, the loan will need to be repaid by age 65 for the simple reason that French lenders insist upon life cover being taken out, generally via their own tied insurer. Few French insurers will accept life cover requests if the client is over 65 years old, which means the bank cannot then offer the loan.
So make sure you are not over 64 years old when taking out a loan. If you have retired and are moving to France, you can save a considerable amount by getting your life cover in place before your 65th birthday.
Prove your income. If you are salaried, expect to be asked for salary slips and P60s. French banks like to see 3 months salary slips and 2 years worth of P60s. If you are self-employed, 2 years report and accounts is the minimum requirement.
Bank statements are a must – again, the bank will want to see how well you are running your finances, so you will need at least 3 months of bank statements.
Check out leaseback deals. French developers can offer innovative deals on leasebacks, which allow you to reclaim the VAT on selected new build properties, providing you keep ownership for an agreed period.
Open a French current account! The banks will demand it and it is nearly as time consuming as getting a mortgage. Nowadays, prompted by TV programmes such as Channel 4’s No Going Back, many buyers are tempted to give up their UK career, sell their house and try their luck abroad. But the complexities of currency, language, customs and local law all add up to make negotiating a foreign currency mortgage a far more complex task than the equivalent UK product. Add to this the relaxed French attitude, which is one of the main reasons so many people move across the Channel, and you can see why house hunters should allow plenty of time to get their finances in order before viewing their dream home.
For information on mortgages in France and equity release in the UK, email , telephone 0044 (0) 20 8333 9125 or visit www.offshoreonline.ORG.
