Getting a French mortgage for your investment property
Making the decision to invest in a holiday property in France can be both financially and personally rewarding. However, it’s not just an option for the super-rich in search of a safe haven to store their money while drawing a rental income. Investing in property overseas can make financial sense even for those without the cash on hand to buy their second property outright. Here we take a look at the ins and outs of getting a mortgage for your investment property in France.
When a mortgage is right for you
There are a variety of factors to consider when deciding whether to opt for a mortgage on your overseas investment property. Some investors may decide to re-mortgage their home in their own country first, which may be more straightforward and comes without any exposure to the potential downsides of currency risk. However, having the flexibility to take out a French mortgage can be particularly useful for those who are unable to re-mortgage their home for the full amount of the new property, or for those who choose not to. The good news is that the French property market as a whole is increasingly welcoming for overseas buyers and most major French banks will lend to foreign investors, even those who aren’t resident in France.
How much can I borrow?
The rules for lending to foreigners and non-residents in France are the same as those for lending to residents, so you won’t automatically be penalised for being an overseas investor. However, some banks and lending institutions may choose to apply their own additional conditions so it is always worth shopping around to ensure you are getting the right mortgage for your needs. Borrowing up to 70-80% of your property’s value is fairly typical, meaning you’ll need to plan for a deposit of 20-30%, but there are other peculiarities of French law that you’ll want to consider. If you’re under 65, i.e. of working age, French lenders are also legally required to take your income into account when deciding how much to lend. In France, lenders must ensure that the total of all of your liabilities including any rent, other mortgages etc. does not exceed 30% of your total household income. Your household income is calculated based on the income of up to three co-signers. For those over 65, only retirement income will be taken into account.
Remember the hidden costs
It is worth remembering that the transaction costs associated with your property purchase (20-30% of the property’s cost) will not be covered by your mortgage. In addition, there are fees such as valuation surveys and notary fees associated with setting up the mortgage itself and these would need to be covered by personal funds. Furthermore, you may also be asked to set up a savings account with a minimum deposit to protect lenders against any currency risk and you will also need to take out mandatory life insurance. All of this will need to be factored into your calculations.
The last word in French mortgages
The key thing to bear in mind when applying for a mortgage on your French investment property is that you will need to get organised and stay organised. There will be plenty of paperwork to complete as part of your application and it’s important to be systematic in your approach to avoid becoming overwhelmed. For those who aren’t interested in getting into the complex details of the mortgage paperwork or who feel that their time would be better spent elsewhere, consider choosing a reputable property management company, such as those who offer buy-to-let arrangements. You’ll need to do your homework to make sure you select a company you trust to represent your interests, but it does mean they will have experts on hand to take care of the heavy administrative lifting.
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