Leaseback Property Mortgages

First published: 23rd August 2007 by Trevor Bridge

Many people choose to buy a second property in France as an investment opportunity. In particular the popular holiday destinations such as the French Alps or Mediterranean coast are good locations to let out property. Coastal resorts such as Nice tend to be fully booked between April and September. While, ski chalets are highly sought after as the rental potential is good all year round. In the summer many walkers flock to the stunning mountain resorts such as Chamonix. A popular way for buyers to fund such a property in France is by using a leaseback scheme. It is therefore an ideal mortgage type for property investors because purchasers are usually only entitled to between two to four weeks use of the property per year.

How do leaseback schemes work?

Leaseback properties have been available in France for some time. A leaseback scheme is where buyers agree to lease the property back to a management company for year round rentals. It is usually leased back to the management company for a fixed period of 9 or more years, with a guaranteed return usually around 5 – 6 per cent of the price paid for the property. Obtaining a mortgage for a leaseback property in France is quite straightforward. Usually, one can borrow 80% of the leaseback property’s value over a 5 to 35 year period. In some cases, the French banks are able to offer 100% finance for a leaseback property purchase.

How are leaseback properties funded?

Funding a leaseback property by taking out a mortgage secured on the property is reasonably straightforward and there are many mortgages available from French lenders specifically catering for the leaseback market. The types of mortgages available from French lenders are similar to those offered by UK banks. There are a variety of interest rates available and these rates can be fixed or variable. The interest rate payable for each mortgage is determined by how much of a loan is required compared to the value of the property. This is referred to as the ‘Loan to Value’ (LTV). It is often the case that, the greater the deposit a buyer has to put down on a property, the more they will have access to the most competitive mortgage deals.

In your finance calculations, any guaranteed rental income from your French leaseback may be used. Before the bank looks to your financial status to secure your borrowing, your rental income is counted against the cost of the mortgage. Overall, this means that you can afford to apply for a larger mortgage amount than you might otherwise be able to do so for a standard (non-leaseback) property in France.