French mortgage interest rates have recently fallen to an all time low, less than the rates seen at the end of World War 2. Moreover the stability of the European Central Bank shows that these low rates are due to the huge amount of competition between banks & suggests that they could remain low for some time.
The recession & economic climate has also resulted in falling property sales in many areas of France which have impacted on property prices. The average property price in France has dropped by 2.9% in 2013 & they could fall by a further 1% this year according to the FNAIM (The French National Real Estate Federation). Bad news for sellers but a temptation for buyers.
The most straightforward way to buy property in France would be to remortgage your current UK property to raise the cash. This would mean less paperwork, quicker turnaround & there is also more protection against the possible negative effects of currency fluctuations. Alternatively you can raise the cash from other resources.
For the majority of us however Euro French mortgages offer the best choice. Obtaining a French mortgage is an attractive option for a couple of reasons.
First & foremost French mortgage rates are typically lower than those offered in the UK, this holds true even more so now due to the decrease in French interest rates over the past couple of years.
Also, if you are buying to let your property then French mortgages allow you to offset the interest on your mortgage against the rental income of the property, therefore the French income tax you pay would be reduced. This does however depend on the accounting method you use to pay your income tax (more information on French income tax will be covered in future articles).
There are a range of French mortgages available to UK buyers. One of the most attractive are capped mortgages which have a maximum interest rate reducing the uncertainty of repayments. This can be great for those buying a holiday home with plans to rent it out as well as you will be able to plan your finances with more accuracy as you settle in or carry out renovations to your new home.
We spoke to Cathie Font, a mortgage adviser from BNP PARIBAS International Buyers which is a European specialist lender for international buyers of property in France. She said,
Around 95% of the mortgages I sell each day to UK clients are capped rate, clients like the security and we also don't charge any early redemption fees. It also offers security to the banks & so I'm quite surprised that they're not as popular in the UK.
The most popular mortgage we sell has a rate of 3.1% plus a 1% cap for 7 years with an 85% LTV (Loan to value). If buyers can provide more capital to reduce the LTV required then the rate drops accordingly.
We take our clients through the whole process including setting up a French bank account for repayments & aim to make it as simple & easy for our clients as possible.
After the capped period is over most mortgages revert to the bank's standard variable rate which is calculated according to the Euribor index plus a margin determined by the bank. BNP PARIBAS International Buyers ensure that your repayments don't exceed that initial rate & so if the Euribor has increased after the capped period you can extend the duration of your mortgage. There are also no early redemption fees giving mortgagees even more flexibility.
Chris and Beverly Howard have recently bought a 2 bedroom apartment in Les Gets. They secured a 15 year capped mortgage at 3% + 1% cap for 7 years, we asked Chris why they chose a capped mortgage & how they found the process, he said,
A Capped mortgage seemed like a good option. The best thing for me is the flexibility. We chose this option because it gives us a lot of flexibility for paying the mortgage off in yearly lump sums as I expect to pay it off soon.
We found the application process brilliant, the people we worked with in France were prompt & really efficient. I think better than it would have been in Britain. Having said that the information and documents required was really onerous. For example I had to get my accountant to send a letter, e-mail would not have been acceptable, on headed paper justifying that I had the deposit available. But I do understand why they have to be cautious. I expect it's similar now in the UK.
We're very happy with our new property though, we only bought in November and have already used it loads, we also rent it out & that's gone really well. It's probably the best things we ever did! We are 100% happy with our new holiday home.
So, if you are thinking about buying property in France either for a permanent home, holiday home or rental, with mortgage rates so low, now really is the time. There is a great deal of help & support available out there from companies such as France Property Angels, helping British buyers find their ideal alpine home.
If you would like to share your experiences with French mortgages or have any tips you'd like to share then we would love to hear from you. Please leave your comments below.