How Are Rising Interest Rates Affecting French Mortgages?

Fiona Watts looks at how the economic crisis and rising interest rates are affecting French mortgages

As interest rates in the UK hit a 14-year high, what impact is the current economic climate having on the French mortgage market and how does this affect non-resident buyers’ dreams of financing the purchase of a second home or main residence in France?

There is a misconception in the market that non-residents are currently unable to get a French mortgage. This  simply isn’t the case. It’s true that the current geo-political climate means that the market is very challenging, and rates have increased, but there are still a number of options for clients.

However, it is true that the French banks’ criteria, which was already challenging for some buyers, is now even stricter. Here is what you need to have in place in order to qualify for a French mortgage.

Savings

The French banks want to see that you can demonstrate the capacity to save and so clients should ensure that in addition to the deposit required for the property purchase, they also have savings amounting to the equivalent of 12-24 months of mortgage repayments. So for example, for a property purchase of €300,000 with a LTV of 80%, the client would need to have €60,000 for the deposit, cash for the notaire’s fees (typically around 7.5% of the purchase price) so €22,500 and at least 12 months’ worth of mortgage payments so €15,900. That’s a total of €98,400 that you would have to be able to demonstrate to the bank that you have in liquid assets.

Post-Covid, some lenders are insisting on you opening a savings account with them and maintaining a minimum balance of six to 12 months of mortgage payments.

And a word of warning, French banks will look closely at the source of your contribution. Gifts from family or friends will be looked at negatively. They need to see that you have been able to save from your earnings, as this provides them with comfort that you have surplus funds each month which could be used to service their mortgage.

Company accounts

If you are self-employed, you must have a minimum of three years’ company accounts to support your mortgage application. So, your business must have been established for at least three years. Note that only salary and dividends drawn for the last three years will be taken into consideration by the French banks when determining affordability.

Employment history

If you are in a new role, it is vital that you have passed your probation period, and you must be able to provide three months’ worth of payslips to support your application. Some lenders will include bonuses, provided you can provide three years of history.

Affordability DTIR

The French banks look at affordability in terms of your debt-to-income ratio (DTIR). As a rule of thumb, a French bank will require you to have a DTIR of 33% or less before they will consider lending to you. This means that no more than a third of your monthly income can be taken up by contractual debts (such as existing rent or mortgage payments; the new French mortgage; any credit cards that you don’t clear at the end of every month; child maintenance; personal loans and car finance payments).

And a word of warning – the DTIR is calculated differently depending on the lender, with some banks basing it on gross income and others on net income. This can have a huge impact on the affordability.

The French banks will also require you to have a minimum amount left over each month (called residual income) and the amount will be calculated based on how many dependants you have and your specific DTIR.

Fiona Watts is a co-founder and managing director at International Private Finance – an award-winning French mortgage service that has been helping overseas buyers secure mortgages on French properties for more than 12 years.

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