UK or French Mortgage for British Property Buyers in France
Essential Reading
British buyers have two main options available to them when it comes to financing their French property purchase. Take out a French mortgage on the property or re-mortgage your UK home to free up the equity to purchase your French home. But should you choose a UK or French mortgage, and what the potential advantages and disadvantages of each?
French Mortgages for British Buyers
The first thing that a British buyer in France needs to understand is that UK banks are unable to arrange a mortgage that is directly secured against a French property. Only French lending institutions are authorised to take a guarantee on French real estate. Therefore the only option to secure financing against your property purchase is to apply for a French mortgage. There are many good reasons to consider this:
- Taking out a mortgage in euros means that a large portion of the purchase is not immediately exposed to the exchange rate. Instead, the buyer’s sterling funds are gradually transferred into euros over the course of the repayment of the mortgage. Therefore, the borrower can choose the moment to make these transfers when the rate moves favourably, potentially saving thousands of pounds.
- Fixed rates are particularly attractive in France. At the start of 2021, a mortgage could be fixed with a French lender at 2% for a full 20 years. This could be a reassuring sight indeed for risk-averse borrowers.
- It is far less risky to take out a mortgage in the same currency in which the property is valued (in this case, the euro). Regardless of sterling-euro fluctuations over the mortgage term, the property value will always be relative to the loan value. In the worst-case scenario of not being able to pay your mortgage, you would be able to sell the property to cover the debt.
- There are various tax implications involved in taking out a French mortgage. It could help to protect you from French wealth tax, or even offset income tax if you choose to let the property out. Buyers should always seek professional advice from a French legal expert on these matters.
- It is always easiest to raise money against a French property at the time of the purchase. Please be aware that, should you wish to release some capital from the property a few years down the line, this often proves to be a much more complex and expensive process than doing so at the point of purchase.
Remortgaging Your UK Home
While many British buyers are approved for French mortgages, not all candidates will be eligible. If you are a British buyer over 70, have a high debt-to-income ratio (even with a high credit score), or are hoping to purchase a very old or low-value property, you may find that a French mortgage isn’t possible. Our article on French mortgage eligibility can help you decide whether it’s worth pursuing an application.
An alternative option is to raise equity against your UK residence by remortgaging. You can then transfer the funds across into euros and buy your French property outright. This may seem a safer option for cautious British buyers who are daunted by the prospect of dealing with French banks and mortgage lenders. It might also be appealing to keep the majority of your finances and debts in sterling, especially if all your income is also in sterling.
However, there is a danger involved in taking a mortgage out in a different currency to that in which the property is valued. If the pound dramatically strengthens, the UK debt could end up being worth more than the euro-valued property in France. This effectively creates negative equity for the property. Of course, the opposite could also happen, putting you in a far more favourable position, but it’s important to carefully weigh up the risks before committing to this option.
Whether you choose to take a mortgage out in the UK or France will all depend on your personal circumstances. The best course of action is always to speak with a French mortgage broker who will be able to assess your situation and advise on the financing available accordingly.
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