Why borrow in France?
By Nathalie Hilton @ International Private Finance,
London based French mortgage broker
Mitigate the volatile exchange rate and reduce sterling cost
The Sterling cost of purchasing a property in France is only fixed when you actually transfer your GBPs into Euros.
Part financing your purchase with Euros will allow you to delay this transfer until the exchange rate has recovered in your favour.
This has proven a popular strategy with cash rich buyers since Brexit, the subsequent fall of the Sterling and the very volatile evolution of the exchange rate.
You basically match the currency exposure of the asset you are buying (the French property) and the funds you are using to finance the purchase (Euros borrowed from the bank rather than Sterling savings you have).
Once the exchange rate moves in your favour, you are in a position to repay all or part of the French mortgage thereby not only reducing the debt against the property, but also the sterling cost of purchasing your second home in France.
A large majority of mortgages in France feature no or very low early redemption penalties, so it is important you select the most adequate product from the outset through an experienced broker.
Secure finance on the French property rather than your main residence
A large majority of second home buyers feel more comfortable to raise finance on the new French property as opposed to taking new or additional liability on their main residence at home.
When you borrow in France, the lenders will always take a first rank charge of the French property; this will be registered against the asset by the notaire who looks after the conveyancing process.
Borrowing in France means access to high Loan to Values and longer fixed terms
French mortgage rates are very close to historic lows, and long term fixed rate mortgages are very popular in the domestic French market.
At the time of writing, you can typically borrow for 20 years at rates as little as 1.40% (with a 20% side investment) or 2.15% (with no side investment), and you have the reassurance that your monthly repayments will never increase.
Loan to values (LTVs) for non-resident buyers are also very high in France and depending on your circumstances, you can typically borrow up to 85-90% of the purchase price net of agents or notaires’ fees. This is however only available on a repayment basis.
Some of the banks will also offer interest only options or “in-fine” as it is called in France, though they have much stricter criteria and it is more difficult to qualify for this type of loans. The best LTVs available on interest only tend to be around 70-75% of the net purchase price.
Create a debt on the French property, as mortgage interest can currently be offset against some of the French taxes
In a number of cases, it is possible to offset the interest of your French mortgage against tax on the rental income that you may generate with the French property.
For purchases of €1,300,000 and over, the French Wealth tax becomes applicable on the net value of the property, as per the rates below.
|Value Taxable/Valeur imposable||Rate of Tax/Taux d'imposition|
|€0 - €800,000||0%|
|€800,000 - €1,300,000||0.5%|
|€1,300,000 - €2,570,000||0.70%|
|€2,570,000 - €5,000,000||1%|
|€5,000,000 - €10,000,000||1.25%|
This is one of the reasons why many investors choose to take out a mortgage on those more expensive properties.
We always recommend that you take independent advice from an accountant about tax implications for any property purchase in France.
To discuss the above in further details, contact Enquiries@internationalprivatefinance.com