BUY TO LET MORTGAGES

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INTRODUCTION

  • Buy-to-let is a British phrase referring to the purchase of a property specifically to let out, that is to rent it out.
  • buy-to-let mortgage is a mortgage loan specifically designed for this purpose.
  • Buy-to-let properties are usually residential but the term also encompasses student property investments and hotel room investments.
  • Buy To Let mortgages strictly for residential purposes in France can be organised on very attractive deals compared to those of neighbouring countries
  • It is quite common for a French resident to fix their mortgage payments for 20 years and to see that loan through to the end without ever remortgaging.
  • As a result, non-residents are also utilising this great long term value in French ‘Buy To Let’ mortgages.
  • In France, any variable rate mortgage offers the flexibility to increase the term of the mortgage to bring down payments, with many banks capping the amount of the increase in monthly payments to the rate of inflation.
  • Only in exceptional cases will French banks allow borrowers to take on a mortgage payment which would increase the amount spent on a monthly basis, to service all their payments for borrowings past 33% of gross income.
  • This leaves borrowers with sufficient income to spend, and the fact that mortgages are either capped or fixed means that the banks are confident borrowers will not default.
  • The stability that this responsible lending brings means that 90% loan-to-value is still achievable from a range of banks, for both residents of France and non-residents, though other lending criteria may apply (such as making loans only available to homeowners or those with a certain level of savings, with minimum income criteria also prevalent).
  • The bank will take a charge on the prospective property the details of which will be outlined in the loan offer.
  • The loan will generally be a non-recourse loan – meaning that in case of default the bank will only take the property as security and not pursue payment of the debt from other assets.
  • This is one of the reasons the banks are so strict when asking for evidence of income and assets.

MORTGAGES FOR BUY TO LET PROPERTIES IN FRANCE

  • French mortgages for Buy To Let properties are now available for up to 90% of the purchase price excluding purchase taxes.
  • French banks are keen to finance Buy To Let properties and there are many reasons why getting a mortgage in France may be the right solution for you.
  • French mortgage interest rates are generally 1-3% below the UK/USA equivalent, so it may be cheaper to borrow the money in France.
  • Also, it is generally accepted that it is safer to have your exchange rate risk based on the monthly mortgage payment of the value of the entire property.
  • For example, it would be better to pay 20% more for your mortgage payment on a monthly basis, than being forced to sell through a change in circumstances and finding the value of your property is 20% less than the mortgage used to buy it.
  • In addition, if applicable to your circumstances, if you receive rental income in Euros it makes sense to have a loan that is also paid in Euros which also lessens exchange rate risk.
  • In the current climate where the Euro is historically strong (March 2019), the prevailing exchange rate may mean a perceived currency exchange loss on purchase.
  • It is worth considering a maximum loan-to-value Euro loan, in order to reduce the requirement to convert your funds into Euros until the exchange rate moves more in your favour.

BUY TO LET MORTGAGE FEES

  • By taking a mortgage in France, you will also have to pay mortgage registration tax which varies depending on the loan amount.
  • As a rule of thumb it will be 1.5% for a new build property and perhaps only 0.75% or less for an existing property using a  “PPD – Privilège de Prêteur de Deniers”.
  • French banks will charge up to 1% as a fee to set up the loan though generally the amount will be lower than this.
  • You will also have to open a French bank account, which will have an annual fee of approximately €100 per year
  • ICE Finance charges a fee as specialists which will be payable on acceptance of your mortgage offer.
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FINDING OUT HOW MUCH YOU CAN BORROW

  • The first step is to speak with a professional French mortgage broker like ICE Finance who will ask a few important questions to establish your eligibility with a number of different banks.
  • Initially we will want to understand your existing debt to income ratio. This is calculated by dividing your outgoings for debt payments by your gross income and should not exceed 33%.
  • In simple terms, this means that if you earn the equivalent of €3000 per month, a French bank will not allow your total payments for your existing borrowings and the future mortgage to exceed €1000 per month for a second home.
  • In the case of a buy-to-let investment, this amount would be increased as the French bank may also allow you to deduct 80% of the future rental income derived from the buy-to-let property from your outgoings.
  • Request a pre-approval decision now and let us work out how much you could borrow.

BUY TO LET MORTGAGE PRODUCTS

  • French mortgage products for Buy To Let properties are designed to maximise security for the borrower as this is what the market wants.
  • Therefore the majority of loans in the French mortgage market will be on a long term fixed rate or a capped variable rate.
  • These product types ensure you know how much you will pay each month – or in the case of a capped mortgage, what your maximum exposure could be.
  • Variable length mortgages
  • The majority of variable rate tracker loans are ‘elastic’ and can stretch the mortgage term by up to five years if rates increase so that your mortgage payment will remain the same even if rates increase by as much as 0.75%.
  • In addition, any increases to the mortgage payment are generally limited to the rate of inflation per year, meaning an overall increase of 2-3% per year.
  • Switching to a fixed rate
  • Further protection is offered by French law so that, should you take a variable rate mortgage, you will always have the option to call your bank and switch to a fixed rate for the rest of the term.
  • Please be advised that if you make this switch, you may have a penalty to pay and you will not be able to switch back to a variable rate mortgage.
  • Good levels of security
  • These extra features offer peace of mind to the prospective borrower in France but do vary from bank to bank.
  • It is important to get to the bottom of these features when comparing the different offers in the market.

APPLYING FOR YOUR BUY TO LET MORTGAGE

  • Following the changes in the mortgage application process of certain EU countries, obtaining a mortgage in France is no longer harder to do than in its neighbouring countries such as the UK.
  • Of course, the French are still very protective over the financial markets, including those relating to French second home mortgages products but in many ways this is why it is possible to source such favourable rates over such long periods.
  • This security means however that non-status lending and self-certification mortgages are not available.
  • Each of the French banks has a slightly different underwriting criteria and so requires a slightly different set of supporting documents.
  • Some banks may also require documents to be certified by a finance or legal professional – we will advise accordingly based upon your own personal circumstances and French property project.
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CURRENT INTEREST RATES

  • Click here to view the latest interest rates available for overseas clients

 

The Euro Interbank Offered Rate (EURIBOR) is a daily reference rate, published by the ‘European Money Markets Institute’ based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market (or interbank market).

It is used to determine the rate at which French banks and institutions lend money to each other.

Most French banks who offer a variable rate mortgage take the “Euribor 3 month” index number and add on their own margin.

The overall rate charged to a client is thus: the base rate at the time plus a margin: current examples for 2019: for one month (+ 0.9), three months (+ 1.2), six months (+ 1.6) and 12 months (+ 1.9) – each bank sets its own levels of rates charged.