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The 20 most frequently asked questions
Q1. "How much can I borrow and how is it worked out" ? A. This is the most frequently asked question of all - but, unfortunately, it is also one with no easy answer. Because of this we have given this question a long and full answer. We hope this will help you understand the French "affordability" concept which applies to French mortgages, but do contact us if you need to clarify anything involving this fairly complex topic. Firstly, under French lending rules and by Law, French lenders must "take into account the affordability of any proposed new mortgage lending". All types (and nationalities) of lenders usually do so, of course, as part of prudent and responsible lending. Many UK lenders operate on "income multiples" when assessing lending amounts, but even when doing so, account is still taken of the proportion of a clients' income being taken up by the proposed mortgage payments. But, in France, lenders must consider affordability very carefully due to consumer law. It is left to each lender to determine what is and what is not "affordable" in any one case, and because of this, you will find varying advice and information on how a lender assesses affordability, with some lenders saying its based on 33% of gross income, others that its based on net income etc. The "normal" or most common affordability criteria used is that, at the time of your mortgage application, the new proposed French mortgage monthly payments plus all / any existing financial commitments, such as any existing mortgage payments, rent payments, loan repayments and other ongoing "contractual financial commitments" (such as Maintenance payments) must not exceed 33% of your total Gross monthly income (or, as already mentioned, with some lenders a less generous 33% of Net income is used). For joint income mortgage cases, the joint incomes are added together and each partner's, and any joint and individual existing financial commitments are counted too. However, for clients who are "high earners" (ie earning upwards of £75,000 pa), the 33% rule may not be applied in all cases - although its fair to say such matters are subject to ad hoc agreements - we have done cases where the debt ratio was more like 40% on a few occasions, or more commonly, in the region of 34% to 38% for such clients - hence this shows the flexibility that can exist in some cases, and where the client's financial profile shows its merited. For employees, "gross monthly income" means "before tax" income and where used, the term "Net income" means "after tax" income or "take home pay". For self employed clients, a different income definition is used (normally involving an assessment and interpretation of the last 2 or 3 years' accounts, in particular the annual Taxable Net profits, backed up by personal banking records). For directors of Limited companies, normally any salary and dividends (averaged out over 2 or 3 years) will be assessed (and possibly any balance left over in the Capital Account of the Company may also be assessed). Other types of verified gross or net income can also be assessed, including Investment income, State and Private Pension income, Rental income, Maintenance payments received etc. State Benefits are normally excluded from income assessments. Existing "financial commitments" do not include normal day to day living expenses - such as food bills, Utility bills, Council Tax and such like. So, if you take two individual clients who may have identical incomes, they would not be able to borrow the same amount on a French mortgage if one of them had much higher existing "financial commitments" than the other. They would have different "affordability" capacities, even though they may bring home exactly the same amount of money each month. Accordingly, there is no easy answer to how much you can borrow, as your own circumstances, income and outgoings are obviously unique to you. This reinforces the need to have us very carefully check and review your current circumstances by you fully (and accurately) completing a Decision in Principle Form, which is located in the "Decisions in Principle" section of this Website. This allows us to determine for you the mortgage availability and the amounts you could borrow. We are always very happy to work these figures out for you, without obligation. You can establish all this without talking to us, as we use e-mail communication in most cases. If you wish to complete the Decision in Principle form you can use this link to take you to that section of the Site.... Decisions in Principle However, it follows logically from what we have said above that if you already have a third or more of your gross monthly income going out on existing mortgages, loans etc , you are very unlikely to be able to raise a French mortgage. You should also question the affordability of any further commitments, as the conventional wisdom is that breaching the 33% rule would normally begin to cause you financial difficulties. Please also note that any potential letting income from the proposed French property is not normally considered, when assessing French mortgage applications. Lenders simply will not take "potential income" into account, for a number of good reasons. Your application must stand up on its own merits, without inclusion of prospective letting income. You are however, normally free to let the property if you wish. Although the affordability concept and rules may seem rather complicated and involved, the idea is to prevent clients from over-committing themselves.... and for lenders to act responsibly in reaching lending decisions. That has to be good thing on both counts, of course. Lastly, please remember that the overall amount you can borrow is also partly related to your available deposit funds. If you are not already resident and taxed in France itself at the time of the application, you must normally be able to put down a minimum of 20% of the purchase price or 15% for cases where you intend borrowing above 75,000 euro. For clients resident and taxed in France itself at the time of their application, lower deposit levels are required than for Non resident borrowers. In fact, mortgages of up to 100% are available. In addition, you will need to have available the Notaire's fees (buying costs), which can range between 6-10% of the purchase price. Please note that we do not handle mortgages below €60,000 euros Q2. "How long does it take to get a mortgage arranged" ? A. Typically, it takes around 2 to 4 weeks for a mortgage offer although we can often obtain a decision or indication based on the financial aspects of your application within a few days of the lender receiving your application from us. It is also possible to make an application without a property in mind (i.e. to "pre-qualify" for a mortgage) so that when you have found somewhere you wish to buy, your full mortgage application will be processed that much quicker, as the Status (financial aspects) of your case would have already been agreed. As a general point, the better the quality and accuracy of the initial case submission, the quicker it will be processed by a lender. We put considerable efforts into this aspect and have a huge amount of experience: before you apply for a mortgage, we will have fully briefed you on all the items required in conjunction with your mortgage application - so you can plan ahead and gather together exactly what you need in good time. Q3 "How many people can apply on a mortgage application" ? A. Normally, and subject to each applicants' own satisfactory past credit history and status, up to four unrelated applicants can apply together. If there are to be more than four applicants, then they would need normally need to be related or else "very closely connected" to a lenders' satisfaction. The "record" number of applicants on the same (and successful) mortgage application is 12 individuals. The affordability criteria used for cases involving more than two applicants will be assessed differently to solo or dual applicant cases. Please contact us for details on this, if relevant to you Q4 "Can a non-earning partner or spouse join in a joint application" ? A. Yes, assuming the non-earner has not had any serious past credit problems, then they can join in a mortgage application with an earning spouse or partner. Q5 "How do you get paid for your service" ? A. We are paid by the French lenders for the mortgage business we introduce to them. Most lenders pay us a very similar amount, so there is little reason for us to favour one lender as against another: other than for reasons which would be in your best interests: for example, us knowing which French lender would be the more likely to accept an application from you, and / or to grant a mortgage on the particular property you are interested in. For all cases of € 60,000 euros or more our own services are provided without any brokerage fee being charged. Q6 "How many lenders do you deal with" ? A. We currently deal with eight lenders in total, although the majority of our mortgage business (80%+) is placed with six lenders in France, mainly for reasons which include the quality of service and staff, flexibility, ability to deal electronically with case feedback or issues arising, good brand and name awareness and speed of processing. Concentrating the majority of our business also means we have more influence, when needed owing to the business volumes we place. Q7 "Is there any disadvantage regarding interest rates or terms if we use you" ? A. No. There is no disadvantage in the interest rates or terms offered to French Mortgage Connection clients. Often the reverse is the case in fact. We can save our client's money on good quality larger cases by improving on standard terms, rate and margins and on arrangement fees - as we often have certain leeway given to us by panel lenders. French Mortgage Connection are responsible for very significant levels of business with many French lenders in the non resident market and have the influence which goes with that. There really is nothing to lose at all by using our services as opposed to going directly to a lender or bank - why not try us and see for yourself ? Q8 "What would it cost me, if my application was unsuccessful" ? A. Nothing! Please see our Terms of Business for confirmation and clarification of the basis upon which we act. Our Terms of Business are very straight-forward and a copy can be seen in the Terms of Business section of the website. Q9 "Do we need to meet you" ? A. No.... everything can normally be done by post, phone, fax and e-mail. In fact, it is very rare for us to meet clients unless it is at a French property exhibition. If you feel you really would like to meet up, this could be possible but you would need to discuss this with us first and be borrowing over € 200,000 euros. Please note we often meet past and present clients at the French Property News exhibitions, which we often attend in London, Taunton, Birmingham and Harrogate. Q10 "If you refer us to other advisers, do you get anything for that"? A. No - and it is not our policy to seek any direct rewards for referrals to third party firms, including from solicitors, estate agents etc. We also refuse any such offers on principle - as we are proud of our complete independence. We do not charge fees to firms appearing on our Links page nor have any direct involvement or shareholdings etc in any firms listed there. Equally, no firm or individual is listed there if any adverse information comes to light from any French Mortgage Connection client using their particular services. Q11 "Can I let out my property in France" ? A. Yes, letting out the property for short term holiday lets, several weeks at a time is fine with all our panel lenders. If you wish to let out for long periods with a formal tenancy agreement, you will need to ask the lenders permission before creating any long term tenancy. You will need to check your buildings and contents insurance covers you during any third party occupation of the property, including short term lettings. Q12 "What about Life Insurance" ? A. In France, Life Insurance is a mandatory requirement to go with any mortgage - so that the mortgage would be repaid in the event of death within the mortgage term. If you have suitable existing policies, some types of cover can be used to cover the mortgage - but not Endowment policies or Whole of Life plans (for various technical reasons). Acceptable forms of life cover are Level or Decreasing Term Assurance (provided the insurer is on the approved list of the lender) - which would also need to meet the lender's lending criteria for the Sum Assured and the term of the plan and the parties insured. The lender will require full assignment of the policy. French Mortgage Connection are able to arrange suitable and cost effective cover, either with UK or International insurers or by arranging cover via the lenders' own block policy arrangements (where applicable). Q13 "What about currency risks" ? For example, a euro mortgage payment and also the capital outstanding on your mortgage can change (upwards or downwards) in your own domestic currency terms, as would / will the value, in your domestic currency terms, of any French property. This risk can work both "for" and "against" you depending on currency trends and other factors. If you are paid in Euros, then such currency issues are not relevant, of course. For UK clients, if the UK finally joins the Euro, then such currency fluctuation would cease to be an issue. You should also bear in mind that, as well any potential upside or downside currency risk, there are also other financial factors to consider. One good example is if you intend to derive an income from the letting of your French property (or you decided to do so in future, even if was not the initial intention). In such cases you would be able to offset the interest on a French mortgage against the French rental income for tax purposes, whilst the property was let out - a real and potentially very useful advantage for high tax payers - especially to the Higher Rate taxpayer in the UK and to US clients. This offsetting of interest being paid would not be possible with the interest due on any domestic remortgage, further advance or any other domestic loan taken out outside of France itself - even if it was wholly used to fund the entire purchase of the French property. The loan interest on such domestic borrowing could not be offset against the French income received from the property at all. Two further financial points are worth considering carefully:- (i) if you borrow in Sterling (or your own local currency), your actual debt will remain constant in your own currency terms but the actual value of your asset (the French property itself) could decrease in your own currency terms - which is not very good news if your own debt doesn't decrease in the same way ! This could mean that the problem of "negative equity" (i.e. owing more on something than its worth) could build up in some cases where significant borrowing had been taken out domestically, and where the local currency debt became higher in real terms than the local currency value of the property asset. (ii) if borrowing in Sterling (or your own local currency) you would also have the very substantial up front costs involved in converting all of the entire purchase price from your local currency into euros (as opposed to just having to convert your deposit money into euros). The true cost of this, often hidden from clients in the exchange rate figures, can be as high as 5% in real terms of all the money converted over with the difference between the buying and selling price of the currencies - very profitable for the currency exchange brokers or your own bank. This is why currency exchange firms often reside in such desirable office premises and in such prestigious areas ! There is also the question of affordability. You need to consider how "affordable" your proposed borrowing on a French mortgage is and how it compares with any other available options. If the French mortgage payment increased, in currency terms, by say, 10% or 15%, would the mortgage payment still be affordable for you to make? Would it still be competitive with other available options ? If not, then clearly you may wish to consider those other financing options instead. Finally, there are other risks to gauge and considerations to make, which are perhaps less to do with variations in currencies and more to do with your own peace of mind, when considering borrowing domestically as against borrowing abroad. You need to ask yourself carefully if it is prudent and wise to increase your own domestic mortgage borrowings very substantially on your own main residence / home rather than the alternative of borrowing in France ? Would a remortgage (or other secured domestic borrowing) secured on your main home add an increased risk of keeping that home in the event of sudden financial difficulties, redundancy, divorce or in the event of a major recession affecting your income, job or business ? If that borrowing was secured in France itself against your holiday or second home, would that make it an easier situation to keep your own normal home safe ? None of us can predict or may want to consider such a situation, but these things do happen, as we all know, and not always to other people. Clearly, there are a number of factors to consider but it would be a mistake to think that local currency borrowing, as opposed to euro borrowing on a French property asset, is completely or simply without any risks. It simply isn't the case, although the types of risk may be different in their nature. We always say that if you are in any doubt then we would advise you to stick with what you feel most comfortable with - if that means a remortgage or other type of loan or borrowing secured on your main home, or from other sources available, then so be it ! Q14 "Does location / region affect the mortgage I can obtain" ? A. Yes, it can do - with some (but not all) lenders ! This may be relevant if you require a relatively high proportion of the purchase price on a mortgage (say above 70% of the purchase price in some rural areas/regions). In such cases, we will advise you accordingly. Some lenders have regionalised lending policies and guidelines, where both interest rates and terms available are directly dependent on regional location. Equally, some lenders have no such criteria and terms apply equally across all of mainland France. Q15 "Are 'Leaseback' properties acceptable" ? A. As a general point, leaseback type purchases, where you propose to enter into granting a long term lease to a developer are only acceptable in certain cases, which is broadly speaking where the Developer is very well known, and the property is in certain regions of very high domestic demand (Paris, Cote d'Azure etc). Otherwise, such cases cannot be placed with lenders on our lending panel. The reason there is a problem concerning this aspect, in general terms, is as follows:- Under a long leaseback arrangement, the mortgage lender cannot "easily sell the property on the open market". This is the nub of the problem. If you propose to sign the property over to a Developer under a long leaseback scheme (often for 9 years or more), where you would only have rights to use the property for, perhaps, a few weeks a year (on newly build property this is done to reclaim French TVA / VAT) then, lenders will often not be interested in granting a mortgage on that type of arrangement - as such schemes adversely affect their mortgage security. Normal "short term letting" use (holiday lets etc granted by yourself to holiday makers, family, friends etc) of a property IS acceptable but not the very long leaseback arrangements referred to above. The developers themselves may have arranged an ad hoc facility with a local lender or bank branch (often those actually funding the developers) in which case you may wish to consider any terms available on any such special arrangement. Obviously, the terms of such a scheme may or not be competitive. But, normally, the main stream mortgage lenders will not be interested in such propositions unless in certain areas and with major and well known Developers. Q16 "Do I need a solicitor / lawyer"... ? A. There is no strict requirement to appoint a specialist solicitor or lawyer (i.e. a specialist who can advise on French transactions and matters relating). However, unless you are very familiar with France, the legal system there (which is very different) and you speak French well, in particular you speak or have knowledge of "legalistic" French, we think the potential benefits and peace of mind of having your own specialist legal advice available can outweigh the costs involved. But there is no requirement to do so - its purely optional. You will find a list of such solicitors and lawyers in the Links page. You need to bear in mind that most French Notaires do not normally give advice as such - they are simply there to ensure the transaction proceeds according to French Law. This is not the same thing as ensuring the transaction proceeds in your "best interests" as such, or to explain things in detail to you. Many Notaires do not speak English, so the potential for misunderstandings is always there in those cases. If you want to find out more about the services and costs of legal advice from a solicitor based in the UK, then look on our Links page for UK solicitor contacts. It costs nothing to enquire: they will either send you written details, or discuss their services and fees over the telephone - and some have websites. You can then make a judgment for yourself. If you are in any doubt then please "err on the side of caution" and appoint one to represent you and your interests. Q17 "What about having a Survey carried out" ? A. In France, French buyers don't normally instruct a Surveyor to look at the property. Some lenders will commission a brief Valuation Report - but this would be for their own lending purposes only and you would not normally receive a copy of it. Instead, the norm in France is for French buyers to have the property looked at by local builders or specialist contractors, depending on what seems appropriate. However, there are British Surveyors available, who will inspect and report on the French property and provide you with a full and detailed survey. Look on our Links page for Surveyor contacts and do enquire about fees and services before deciding. Q18 "How do I actually pay my French mortgage" ? A. Normally you will need to set up a French Bank account and pay the mortgage with the French equivalent of a "Direct Debit" (which is called a "Autorisation de Prelevement Automatique" in France) - you will also need a French Bank account to pay for various items of housing related expenditure -such as local (community) tax, utilities etc. Q19 "Why exactly is property so much cheaper in France" ? A. There are a number of reasons behind this important fact. Firstly, there is the simple and logical fact that France is nearly three times the size of the UK, but has more or less the same size population. This means there is much less pressure on land and prices are therefore lower - this is especially true outside of the major French conurbations. Secondly, the rental sector is much more "developed" in France (along with most of continental Europe). There is not the same degree of social, or other, pressures to own your home. Thirdly, the French look at older, rural and isolated housing in a totally different way to many UK buyers. They have to get to work, take the children to School etc, etc... so their priorities are often different to many UK buyers' objectives. This means some rural areas appear very cheap indeed - in comparative terms to other, more convenient or practical, locations. Q20 "What is "EURIBOR"... ? A. EURIBOR stands for the Euro Inter Bank Offered Rate. This is quite simply the interest rate at which European banks can borrow money (from each other) over a set period, for example over 3 months. There are several other EURIBOR indices for other time frames - including 6 month and 12 month EURIBOR. So, the best way of thinking of this is that EURIBOR is effectively the "wholesale" cost of borrowing money, as opposed to the "retail" cost of borrowing the money. The significance of this interest rate index is quite simply that some lenders' schemes are linked to a particular EURIBOR index. It is common for French variable rate mortgage schemes to be reviewed quarterly, in line most commonly with the 3 month EURIBOR rate, but in some case with the 12 month EURIBOR rate. On such schemes, in addition to the relevant EURIBOR rate there will be the lender's own set interest rate margin over and above EURIBOR (which might be 1.5% over 3 month EURIBOR, as an example). The lenders margin over EURIBOR represents the "gross profit" to the lender of lending the money, which it may have borrowed at the EURIBOR rate itself, in some cases. In the UK, the equivalent of EURIBOR is known as "LIBOR" (London Inter Bank Offered Rate) - which is exactly the same kind of concept, although the current rates of EURIBOR and LIBOR at not directly related. In the UK this type of interest rate setting has also become increasingly popular and similar schemes are referred to as "Base Rate Tracker" mortgages. Many clients prefer this type of arrangement, as you are not dependent on your lenders' discretion about the timing of mortgage interest rate changes. The lender can only charge the Index rate plus their set margin (the lenders' margin cannot vary during the life of the mortgage). Lenders cannot keep their mortgage rate artificially high for existing customers, if general money market rates fall. Many key UK lenders have been extremely quick to put their mortgage rates up in the past but then very slow to bring them down when money markets rates fall - using their discretion on traditional variable interest rate timing to maximise profits (at their captive customers' expense whilst offering brand new customers much cheaper mortgage rates). This cannot be done with an Index Tracking mortgage scheme, such as a scheme linked to EURIBOR / LIBOR or to other similar money market indices. If you wish to check on the very latest published rates of the various EURIBOR indices, you can do so by using this link http://www.finfacts.com/Private/dbn/dbn.htm
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