Remortgage vs. French Mortgages for Foreign Buyers
Essential Reading
If you’re an international buyer looking to buy property in France, what are your options for financing your purchase? Should you apply for a French mortgage or remortgage your property in your country of residence? If you have the funds, is a cash buy always the smartest option? To help you decide, let’s take a look at the pros and cons of French mortgages for foreign buyers.
French Property Purchases: Is a Cash Buy the Right Choice?
As a foreign buyer, you have three options available to you when purchasing a house in France. The first option, if you have the capital, is to purchase the property outright, but there are both upsides and downsides to this option.
Benefits of a cash buy:
- Straightforward purchase, with minimum paperwork.
- Greater buying/bargaining power—sellers may be more likely to accept an offer from a cash buyer as they can be sure the sale will go ahead.
- If you purchase property when currency exchange rates are in your favour, you could make a substantial saving on your purchase.
- No mortgage interest rates to pay—you won’t pay anything other than the price of the property and the associated fees.
- The property is yours!
Downsides:
- If you purchase property when currency exchange rates are not in your favour, you could end up paying more than expected on a sale. Opting to take out a French mortgage could help ride out currency exchange fluctuations, enabling you to make lump-sum payments or pay off your mortgage at a time when exchange rates are more beneficial. Just make sure you choose the right type of French mortgage for your situation.
- Your budget is limited to your capital. Opting to take out a mortgage on your property could up your overall budget, allowing you to increase your spending power, without tying up all your money in assets.
- High Net Worth (HNT) individuals owning more than €800,000 of assets (net of any outstanding debts) in France will find themselves liable for French wealth tax, even if you are not resident in France. Taking out a mortgage on a property might be one way to avoid this.
French Mortgages for Foreign Buyers
If you don’t have the capital to purchase a property outright, taking out a French mortgage could be the solution.
Benefits of a French mortgage:
- Taking out a euro mortgage means that the loan value will always be relative to the property value, therefore protecting against major currency exchange rate fluctuations. In the worst-case scenario of not being able to pay your mortgage, you would be able to sell the property.
- Opting for a French mortgage could avoid the need to make large transfers of money at a time when exchange rates are low.
- French mortgage rates can be attractive. They typically offer low-interest rates and long-term fixed rates, which may be more attractive than mortgage rates in your country of residence.
- If you are planning to rent out your French property, you may be able to offset the interest on your French mortgage against this rental income, reducing your French tax liabilities.
Downsides:
- Not all foreign buyers will be eligible for a French mortgage.
- Foreign buyers will have to put down a larger deposit – in the wake of the Covid pandemic, expect a minimum loan of €150,000 for all international buyers (including buyers from the UK, EU countries, and the United States). This means a French mortgage may not be an option for a lower-value property.
- You will need to provide a substantial amount of paperwork, including tax returns, bank statements, and proof of your financial situation. See our guide to applying for a French Mortgage.
- In very competitive markets, some vendors may opt to sell to another buyer whose purchase isn’t conditional on a mortgage approval.
Remortgaging to Fund Your French Property Purchase
The final option for foreign buyers is to remortgage your existing home in your own country, thereby freeing up the equity to purchase your French property outright. This will give you the benefits of essentially being a ‘cash’ buyer on the French market and could be the only option if you don’t qualify for a loan. However, there are some important downsides to consider too.
Benefits of remortgaging:
- You will keep all your finances in a single currency, meaning you can be certain of your monthly outgoings. If both your income and outgoings are in US dollars, for example, you don’t have to worry too much about currency exchange rates, at least until you decide to sell.
- It’s often a simpler and more familiar mortgage application process. There’s no need for translators or international mortgage brokers.
- If you purchase property when currency exchange rates are in your favour, you could make a substantial saving on your purchase.
- Straightforward purchase, with minimum paperwork.
- Greater buying/bargaining power—sellers may be more likely to accept an offer from a cash buyer as they can be sure the sale will go ahead.
Downsides:
- Having your mortgage and property in different currencies does pose a substantial risk. If the value of the Euro was to drop dramatically, you could be left with a mortgage that far exceeds the actual value of your French property, leaving you in a difficult situation if you chose to sell.
- Mortgages rates in your country of residence may have higher interest rates or less favourable terms than those available in France.
- If you are a HNT individual, owning substantial assets in France may mean you are liable to pay French wealth tax, even if you are non-resident.
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