Mortgage Update: Should you consider remortgaging your French home?

If you haven’t already heard, mortgage rates have never been lower. This means that borrowers may be able to restructure their mortgage costs by moving to a more competitive deal. Remortgaging your French home may not have occurred to you before, but it is possible.

We’ve spoken to many clients who took out a mortgage to buy their dream home 5-10 years ago; interest rates are now lower and their properties have gone up in value. Typically they have other projects they need the cash for, either renovations or investing in other property.

Example: This week I spoke to a Norwegian couple with an apartment in Paris with a recent valuation of around €400k. They have €130k remaining on their original mortgage. They are looking to release equity in order to buy another property in Italy.

Low rates, yes, but fewer products

As the market begins to tighten, inevitably banks will reduce the number of products and deals available. One of our lenders has already contacted us to say that their criteria are tightening, they have reduced their products and also will not be lending to people in certain industries or professions – catering, hospitality, aviation etc.

In the UK, for example, Moneyfacts revealed that the number of mortgage products in the UK had dropped by over half. Many products – particular tracker products – less profitable for the lenders now because the margins have reduced.

Let’s be honest, lenders are going to be exercising caution. They have no ides what the next few years will bring financially. The pandemic could lead to a rise in unemployment and a drop in house prices.

Whilst the number of products for purchases will inevitably reduce because of the contraction in the market, many lenders are still accepting (and inviting) remortgage, debt consolidation or equity release applications.

Increase your options with a larger deposit

Borrowers seeking a high loan-to-value (LTV) – say 80% to 90% – are likely to be disappointed in the current climate, chances are these mortgages will be severely restricted.

This means that if you have relatively little equity in your home – less than 20% – you are unlikely to be able to remortgage.

Those with upwards of 40% of equity in their home will find it much easier to remortgage.

Be prepared to be scrutinised

There are some excellent, fixed long-term products to be had, but you have to be prepared to have your finances scrutinised before getting a positive result.

The French banking system is relatively conservative, risk-averse and ask lots of questions. And that was before the global pandemic. Now banks will be even more cautious.

Lenders will not only want to asses and evidence your different income streams, they will also want to check how much debt you have outgoing each month and verify the nature of any assets you hold. French lenders are all about affordability and liquidity. They’ll want to ‘stress test’ your finances to make sure that you are a safe pair of hands and will be able to afford mortgage payments for the duration of the term, as well as if interest rates rise in the future.

Assuming your remortgage application is accepted in principle, a property valuation will still need to be carried out. Social distancing will make this difficult, so some lenders are adapting by using automated valuations on residential mortgages, using existing data sets.

Equity Release in France

A popular reason for remortgaging at the moment is to release equity in order to do ‘something else’ with the money locked-up in property. If the amount of equity in your home has increased since you bought it, you can opt for a larger mortgage to cover the higher amount.

In France, equity can be released only for certain reasons – typically one of two

1. You want to make renovations or improvements to that property.

2. You want to release equity to buy another property – maybe an investment or holiday home.

Banks and lenders will have slightly varying criteria but in essence if you aren’t looking to do one of these two things, a French lender won’t go for it. In the UK, for example, equity release is sold as a way to top up income, or release funds for expensive one-off items like a family wedding or a new car. That can’t happen in France. Remember, risk-averse.

Next Steps

If you’re looking to remortgage your home in France, or release equity in it, please get in touch with some initial details of your plans and we’ll see how we can help. We work both directly with lenders as well as specialist mortgage brokers, and our service is free to you.

Contact us: [email protected]

Check out our online mortgage application form here.