Opting for a French Mortgage

First published: 13th May 2010 by Eleanor Fullalove

1. Notaire’s Fees

When you purchase a house in France, the deed of the sale will be registered with a notaire. In contrast to the UK, the notaire will also need to register the deed of the mortgage if the purchase is being financed in this way. This incurs an additional fee which is normally around 1 – 1.5% of the loan amount being secured against the property.

Furthermore, every time you change a mortgage – refinance the loan or release equity against an unencumbered property in the future – you will need to re-register the deed of the mortgage with the notaire. This is one of the major reasons that remortgaging is far less common in France compared with here in the UK, and highlights why it is so important to make sure you secure the most suitable mortgage in the first instance.

However, French lenders are starting to become more relaxed about remortgaging. Due to all of the additional costs involved, some banks now include any notaire fees and supplementary charges in the new loan amount.

2. Lender’s Arrangement Fees

Most lenders in France – including those offshore organisations who can secure mortgages on French properties – will charge an arrangement fee to set up your mortgage. This fee will generally be payable when you complete on your mortgage and typically equates to 1% of the loan amount. Many lenders have a minimum arrangement fee of around € 700 – € 900, while some also have a maximum charge for larger loans.

While most lenders require the arrangement fee to be paid up front, some do allow you to defer the payment by debiting it in installments with your first 12 or 24 monthly mortgage payments.

3. Life Assurance

Although the majority of French banks require you to take out life assurance with your mortgage, there are varying degrees of flexibility between the different lending institutions. The least flexible lenders will insist that you take out cover with their chosen provider, for the simple reason that it improves their profitability of the mortgage. Although this may seem somewhat restricting, often these lenders in fact offer the lowest interest rates and margins on their mortgages. It is therefore important to look at all the conditions proposed.

A second option may be for the lender to request that you assign an existing life assurance policy to their mortgage. The advantage of this is that you will obviously not incur any additional life assurance costs through the administration of your French mortgage.

Finally, certain lenders do not require you to take out any life assurance at all. Occasionally this is an option for loans below a certain loan-to-value ratio (LTV), while other providers can offer this feature as standard.

The exact life assurance costs will of course depend on your age and general health but will be in the region of 0.2 – 0.6% of the loan amount per year.

4. Broker Fees

Arranging a mortgage in France is unquestionably a more daunting proposition than doing so in more familiar markets such as the UK, the USA and Australia. This is primarily because overseas buyers have to confront a different language, a different house buying process and a less developed residential lending market.

A good French mortgage broker will have a bilingual team to guide you through the process, in addition to having access to a complete range of mortgage products. In many instances, they will have discounted rates and fees that would not be available when approaching lenders directly or through smaller brokers. For this reason they will often be able to save you money on your French mortgage.

As is the case with mortgage intermediaries in other countries, these brokers charge varying amounts for their services. Some companies will organise everything for free, some will charge a ‘commitment’ or ‘application’ fee and some will charge a fee on successful completion of the mortgage – or they may apply any combination of the above. The important thing with respect to these fees is to understand how the level of service you are being provided differs and how it is reflected in the fee that is charged.

As with any financial commitment, it is important to look at the full picture when considering the supplementary costs associated with taking out a mortgage on a house in France. If these costs are feasible, however, it can prove a shrewd move to finance your purchase in this way.

With euro/sterling exchange rates near historic lows, many smart investors are opting to take out a flexible euro mortgage to complete their purchase, with a view to paying it off when the exchange rate recovers in sterling’s favour. This has the advantage of reducing the sterling cost of purchasing your dream holiday home in France. Obviously a relatively small movement in the exchange rate will more than compensate for the costs associated with the arrangement of a French mortgage.

This approach also provides you with a natural currency hedge on movements in the exchange rate. Over the past 20 years, the majority of second homes abroad have been purchased using money raised against a primary residence in the UK. These funds have been raised in sterling, against the property valued in sterling, to purchase a property valued in a foreign currency. When the exchange rate moves, the sterling value of the overseas property changes – however, the value of the mortgage used to buy it does not! Obviously this can be of benefit to the owner or cause a problem, but either way it is something to be aware of!