Posts in category: News

Latest transaction: €164,800 Loan for a property in Salies de Bearn.

salies

The profile

Buying in: Salies de Bearn, Pyrénées-Atlantiques
Property price:
€204,785
Mortgage amount: €164,800
Mortgage type: Repayment
Mortgage term: 20 years
Interest rate: 2.00% fixed
Loan-to-value: 80%

The context

A Spanish-British couple wanted to purchase a holiday home close to the popular and historic 

seaside resort of Biarritz in the SW of France, a few miles from the Spanish border. They had struggled to obtain a mortgage because they were currently living in the USA where, despite being on temporary expat contracts, the US Revenue and Customs required them to fill in tax forms on their global assets. This created a number of reporting issues for several European lenders that they applied to, and the couple were soon snowed under with paperwork. Because of these complications, the number of banks left that the couple could still try and get a mortgage from was greatly reduced. 

Our approach

French Private Finance (FPF) was required to provide both UK and US tax returns to the lender – US tax returns being a lot more comprehensive than their UK counterparts. The bank was aware of the complex US Federal and State tax system, and were able to pick up the key elements in order to put the application through the bank’s compliance department.

Upon receiving the signed compromis de vente, it transpired that the property needed some small but urgent works. The lender agreed to finance these; however, they asked for a quote from a local contractor. In order to facilitate this, French Private Finance used their local knowledge to source several quotes, which proved satisfactory to the lender. 

Lastly, the clients needed to take out a life insurance policy, which is a requirement for most banks in France when taking out a mortgage. FPF used a specialist French insurance broker for this, because not all insurance companies in France are able to insure US residents. 

“Your home may be repossessed if you do not keep up repayments on your mortgage”  

“French private Finance Ltd is authorised and regulated by the Financial Conduct Authority”


Latest transaction: €390,000 property in the Var

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The profile

Buying in: Cotignac, Var
Property price:
€390,000
Mortgage amount: €331,500
Mortgage type: Repayment
Mortgage term: 20 years
Interest rate: 2.40% fixed
Loan-to-value: 85%

The context

A couple from London was looking to buy a property in the South of France as a holiday retreat for the whole family. They had previously missed out on several properties as they were not able to secure a mortgage quickly enough, or they had lost out to cash buyers.

Eventually, they found a property in the small village of Cotignac. Although it was a little further away from the sea than they had originally anticipated, the property was still within an hour’s drive of the international airport at Marseille – as well as the beaches of Sainte Maxime and Saint Tropez. 

Our approach

The clients wanted to put down the smallest deposit they could, and also wanted to be sure that the mortgage would be fully paid off by the end of the term. They were keen on securing a mortgage as fast as possible – ideally before the school holidays. 

French Private Finance (FPF) initially investigated the possibility of a 25-year repayment mortgage. However, upon analysing the couple’s situation more closely, FPF recommended that the client reduce the duration to 20 years. Although the monthly instalments increased, the clients would ultimately save a considerable amount of interest over the duration of the mortgage. 

French Private Finance were able to do several things to ease the couple through the purchase, including helping them open a French bank account without them having to fly over to France. FPF were also able to help them find an alternative to the traditional way that French lenders operate. The banks usually require separate life insurance cover to be taken out with them or an approved partner, but in this case FPF used a UK-based insurance broker – and without the need for the couple to have to undergo medical examinations, a solution that was accepted by the lender. Another plus: UK insurance premiums are generally lower than in France.  

“Your home may be repossessed if you do not keep up repayments on your mortgage”  

“French private Finance Ltd is authorised and regulated by the Financial Conduct Authority”


Buying a property: cash vs. mortgage

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From a young age, many of us are taught that debt is something to be avoided.  However, is purchasing a property in cash always a better option than borrowing the money from a bank? We take a look at the pros and cons of each in our latest blog post.

Pros for buying in cash

One of the biggest advantages of buying a property in cash is that the transaction process is much faster as there is no need to apply for a loan or mortgage. In addition, the purchase costs will be lower as you will not need to pay arrangement fees or mortgage registration tax.

Buying in cash doesn’t affect your monthly affordability and there is no risk of your property being repossessed if you run into cash flow problems down the line.

Pros for paying with a mortgage:

The most obvious disadvantage of buying in cash is that it leaves you with a massive hole in your pocket. This can affect your liquidity as a sizeable chunk of your savings will be locked up in brick and mortar. While equity release is an option in other parts of the world if you need to improve your cash flow, it’s very difficult to release equity in France. Taking out a mortgage will allow you to keep some money aside for rainy days and emergencies.

Contrary to popular belief, taking out a mortgage can also help you save money. For example, if the property is rented out, it is possible to offset the interest paid against any rental income. In addition, with private banks offering mortgages of up to 100% LTV, you may also be able to completely avoid paying any property wealth tax if the amount of money you personally put forward is less than 1.3m.

While one of the biggest drawbacks of a mortgage is that you will have to pay additional costs on top of the value of the property (like interest and arrangement fees), low interest rates in France mean that these costs can often be cancelled out by investing money into a financial portfolio. Indeed, many ‘safe’ products have a return which can beat the cost of the mortgage. When investing, always seek advice from a Financial Adviser.

The monthly mortgage repayment will stay the same if you choose a fixed rate. However, inflation means the real value of the mortgage repayment in 10 years will be lower than was at the start. 

Finally, a mortgage allows you to put some money aside for rainy days! 


Everything you need to know about “notaires”

notary

Without a true UK equivalent, it can be difficult to understand the role of the notaire. In our latest blog post, we take a look at what they do and demystify the costs involved.

What is a notaire and do I really need one?

When selling or buying property in France there needs to be an intermediary present who authenticates the transfer of ownership and reports it to the state. This is where the notaire steps in.

The notaire is not only a key player in the transaction process, they are a legal requirement. As a representative of the state, they are non-bias and their duty is to the transaction. Think of them as the referee. They are simply there to make sure that the transaction complies with French property law and ensure that any taxes are collected.

Notaires aren’t strictly limited to French property law, they are also necessary for a number of other transactions in France such as donations and inheritance.

The role of the notaire

Signature of the “Compromis de Vente’’ (the sales contract)

In France, the sales contract is signed at the beginning of the process once an offer has been accepted by the seller. Technically, you do not need to have a notaire at this stage, but it is a good idea to have one as they can help with legal and financial matters such as mortgage clauses.

During the sales process

Before the signature of the deed happens, the notaire will have to collect the seller’s “Titre de propriété”, a legal document proving that he owns the property. Then, he will ask for 5% to 10% of the property price as a warranty (called “depot de garantie’’ in Moliere’s language).

Between signing the sales contract and final deed, the notaire will carry out a number of searches which can take up to three months. 

This includes, but is not limited to the following:

– Identifying the buyer and seller by checking birth and marriage certificates

– Checking that the mortgage is not higher than the value of the property

– Verifying that the property is usable

In order to complete these checks, the notaire may ask you for further documents.

Completion

If there is a mortgage, the notaire will ask the bank to release the money a few days before the deed is signed.

The money from the mortgage and any personal funds never enter the notaire’s hands, they are sent to an escrow account instead. So there is no need to worry about the notaire running off with the money! The money will be transferred to the seller after the deed (called an “acte de vente’’) is signed. Once this is completed, the notaire will give the buyer a certificate of ownership.

Cost

Notary fees do not depend on the notaire you choose, but rather on the value and the condition of the property (newbuild or existing). For a new-build property, the fees are around 2-3% of the property price whilst existing properties have a higher rate of a higher fee of 7-8%.

Though they are called “notary fees’’, 85% is paid to the state and the notaire receives the remaining 15% as payment.

Table (guideline):
Screenshot 2019-07-10 at 11.54.23 AM

Good news for US buyers of French property as 70% loan now available at 1.4% fixed for 20 years creating significant savings.

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Thanks to two new partnerships French Private Finance can now offer up to 70% for US tax residents buying in France.

Since the closure of Credit Foncier de France in January, loans for US taxpayers in France had been limited to 60%, with competing for offers few and far between. The reason for this is that many French banks struggle with the FATCA reporting – Foreign Account Tax Compliance Act –  where banks have to declare everything about each individual US account to the US Tax service.

Thankfully, French Private Finance’s new partners can offer up to 70% LTV on a repayment basis (capital + interest paid every month) with a 20 year fixed rate of 1.40%. These loans will also require a savings account to be opened with circa 15% of the loan amount, though these savings are accessible and not blocked. In addition, this offer is also available to Russian or Brazilian residents as well and limited to employees of listed companies for the time being.

The other good news is that versus the old Credit Foncier deal at 2% fixed for 20 years, people borrowing 1M€ will save close to 70k over the life of the loan.


SARL: Is it viable for your real estate project in France?

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An SARL is a limited liability company and one of the most common types of business in France and very popular with Foreign residents buying in France.

This type of company must be composed of two or more partners or you can create an EURL (single-member company with limited liability) if you want to set up a company by yourself. There is also a Family SARL which allows you to make an SARL with direct family members. This is strictly limited to children, parents, grandparents, siblings and spouses. For example, it would be impossible for a niece and uncle to make a family SARL together. In this case they would need to create a SCI (Civil Society for Real Estate).

Advantages:

Limited liability

The liability of the partners is limited according to how much capital they have invested in the business. However, it is important to remember that it will be difficult to get a mortgage with a small amount of capital. This means that you will need to act as guarantor for the SARL or increase your capital contribution.

Flexibility

There are three major types of SARL, the “classic” SARL, the family SARL, and the SARL Unipersonal (or EURL) which is for those who want to create a business alone. With EURLs, you can always later switch to a different type of SARL if you want to start working with a partner.

Furnished rentals and social contributions

Unlike an SCI, family SARL and EURL businesses can take advantage of the French “rented-out, non-professional, furnished properties” scheme (LMNP). If this is something that you would be interested in pursuing, it is important to get advice on this as your income may be taxed. In addition, if you are trading alone (EURL), you will not need to pay social security contributions if you make €23,000 or less per year. In the case of a family SARL, this limit is multiplied by the number of family members in the company. For example, if your business has four partners, this threshold is increased to €92,000!

Capital gains

Real estate gains in an SARAL are part of the professional tax regime in France because the company’s business is commercial. However, after five years, long-term real estate capital gains benefit from a 10% reduction per year. In other words, you would be totally exempt from paying capital gains tax after 15 years. If you were operating as an SCI, it would take 22 years to reach total exemption from capital gains tax and 30 years to be exempt from the social security part.

Transmission of shares

In France a family SARL allows the dismemberment or separation of shares with the possibility of separating usufruct (use, rent or ability to live in the property) and bare ownership of the property (the ability to sell it once the usufruct has expired). If you keep the usufruct (you continue to collect rent) and you give your children the bare ownership, the amount of inheritance tax will generally be very low. One can see a certain advantage of passing on one’s shares when the company is in debt.

Example: Let’s assume we have client associated in a “SARL familiale” owning an apartment worth 1M euros financed by a mortgage. This client owns 50% of the shares, and there is still 600,000€ to repay. The value of the client’s shares is 200,000€ (400,000€ x 50%). If he transmits the bare ownership to his child worth 80,000€ (200 000 x 40%), the taxable base becomes 0€ thanks to the tax rebate of 100,000€.

Reclaim VAT

When an LMNP investment is subject to VAT (20%), it can be recovered 6 months after the acquisition of the property. In order to benefit from this scheme, your property must fall into one of the following categories:

  • Accommodation services provided in classified tourist hotels
  • Accommodation services provided in classified or approved holiday villages
  • Accommodation provided in classified tourist homes which are intended to accommodate tourists and are rented by a contract for a period of at least 9 years to an operator who has subscribed to a tourism promotion commitment

Whether free or for a fee, you must also offer 3 of these services:

  • Breakfast
  • Daily cleaning of the premises
  • Linen supply
  • Concierge

In addition, you must own the property for at least 20 years to realise the full benefit of the reimbursement. If you do decide to sell before 20 years, the VAT will have to be refunded to the State pro rata. If you have a commercial lease, it will then be necessary to sell your property with the latter to avoid being liable.

Disadvantages:

Set up costs

You will need to write up the statutes of the company for the clerk’s office at the Commercial Court and advertise the incorporation of the company in the newspaper. This will cost between €1,000 and €2,000.

Direction

The company is managed by one or more managers appointed from among the partners or it can be someone external. However, a manager must be natural person – not a legal entity. The powers of a manager are defined in the statutes of the family SARL. The partners meet at least once a year in an ordinary general meeting. Decisions leading to a modification of the statute would be made at an extraordinary general meeting. If taking out a loan from a retail bank then the guarantor should be the manager.

Change of regime

If you choose to pay corporation tax, you cannot change your mind and opt for income tax. However, it would be possible to switch to corporation tax if you were originally paying income tax.

If you choose the income tax

The SARL, since it carries out economic operations for a fee, is a taxable person and, as such, is liable for VAT. When you recover the VAT on the amount of the property, you will have to pay VAT of 20% on rental income. For LMNP property in a senior, student, business or tourism residence, a rate of 10% applies. Property that falls into the leaseback LHPE residence type, the VAT is 5.5%.

If you choose the corporation tax (IS).

For companies with a turnover of less than 7,63m, corporation tax varies according to which profit bracket your business falls in:

ProfitCorporation Tax Rate
0 to 38,12015%
38,120 to 75,000 28%
75,000+33.33%


For companies with a turnover turnover between
7.63m and 50m, corporation tax is broken down into two brackets:

ProfitCorporation Tax Rate
0 to 75,00028%
75,000+33.33%


Companies with a turnover in excess of
50m will pay a flat rate of 33.33%, regardless of profit.

Source: https://www.impots.gouv.fr/portail/professionnel/imposition-des-resultats

The territorial economic contribution

Like those who are self-employed, the SARL will need to pay territorial economic contribution (formerly business tax). New businesses will not need to pay this tax during the year of their creation.

Conclusion:

A real estate company in the form of an SARL has more advantages for less inconvenience than SCI. However, you will need to be very mindful of the requirements of a family SARL if you want to make the most of the furnished rental. As this is a complex issue it is best to involve your mortgage broker and tax adviser at an early stage to ensure all works well.

Published in June 2019. This article is for informational purpose only as an initial guide to the main points and does not constitute tax advice. Please seek independent tax advice before committing to any purchase to ensure the have the correct set up for your personal situation.


Why creating a SCI, and why not…

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An SCI, or “Société Civil Immobilière”, is a company that allows a number of individuals to share one or more real estate entities. The partners of the SCI can make contributions ‘in kind’; movable or immovable property that they already possess. These contributions, most often in kind or in cash, give entitlement to shares in the SCI  based on the total capital to partners share accordingly the profits and losses of the company. The SCI can be administered by one or more managers who are chosen by the partners. The managers may be physical or moral persons, for example, a company.

Pros of an SCI

Legal Protection

One of the advantages of an SCI is that it can protect the assets of the partners. Registered in the Trade and Companies Register, it has a legal personality and a heritage that differs from that of an individual. The SCI is the sole owner of the property. Therefore, in case of a dispute, creditors will first turn against the company. If their action proves to be unsuccessful, they can then bring an action against the partners. Only the shares can be seized by the creditors. In addition, it is difficult for creditors to sell the shares of another SCI associate or to know the extent of their wealth. In fact, the partners have an indefinite responsibility according to their participation in the share capital of the SCI, but not in solidarity. This implies that the creditors must act independently against each partner, to engage their responsibility.

Inheritance

SCI also gives parents the possibility to pass on their property to their children while maintaining the management of the property. They simply bring the property to the SCI and distribute the shares of the company to their children. They are the managers of SCI and thus retain control of the property. When parents and children of the same family are associated with an SCI, we are talking about creating a family SCI.

Taxation

The SCI makes it possible to have advantageous taxation. The transfer of a property is normally subject to capital gains tax, with a tax deduction depending on the length of ownership, and a total exemption from tax after 22 years. For the sale of the shares of SCI, the holding period is calculated from the date of subscription of the units and not from the date of entry of the property into the SCI. In addition, the transfer of shares is simpler than the sale of a building that must go through an authentic notarial act.

Investment

the SCI makes it possible to realize several real estate investments by gathering means, which can facilitate the obtaining of financing. It may indeed be intended, for example, to rent.

Business

if you are a business owner, you may also want to use the SCI to acquire the real estate necessary for your business. SCI will collect rents while deducting rental expenses. This arrangement also allows you to allocate shares of SCI to your children without being in your company. In addition, the creditors of your company will not be able to attack the SCI, so real estate is protected.

Cons of an SCI

Creation

The biggest disadvantage with the SCI is its creation. You must complete certain formalities to create it, in particular:

  • the drafting of the statutes,
  • registration of statutes in the tax department,
  • the publication of the constitution of the SCI in a Journal of Legal Announcements (JAL),
  • the registration of SCI with the Registry of the Commercial Court,
  • the declaration of the beneficial owners of the SCI.

These operations have a cost especially if you go through a lawyer to write the statutes. As for the legal announcement, it takes about 200 €.

Management

You must comply with the operating rules of the SCI such as holding an annual general meeting of partners or the keeping of accounts. Accounting is more rigorous if you have made the choice to submit the SCI corporation tax. The accounts should be handed over to the registry every year.

Engagement

You must also take into account the fact that as an associate of an SCI, you have an indefinite responsibility regarding the debts of this one. You commit your personal wealth in proportion to your shares in SCI.

Sell of shares

The sale of shares of an SCI can be complicated if a clause of approval is provided for in the statutes. Indeed, if you want to sell, it will require the agreement of other partners.

Our Suggestions

Creating an SCI is a good option if you are planning to simplify transmission and protect real estate assets, it permits to be flexible in the choice of the tax system and it adds the possibility to sell shares easily with the agreement of the shareholders. But the procedure may seem complex, you must be rigorous regarding the law concerning the organization of the general assembly and the accounting.


From London to France – The Brexit Effect on Paris Real Estate

Paris streets

A new month, another new high for Paris property price records. London, on the other hand, is experiencing the effects of Brexit and all the uncertainty that comes with the constant delays and lack of clarity which has impacted the London residential property market negatively from a price perspective.

The numbers speak for themselves

In the French capital, we are close to reaching the 10,000 €/per square metre mark after continuous price rises over the last 4 years. This is not the same for all the European capitals, especially if we are looking across the English Channel.

The London market prices reached extreme levels pre-2016, especially in Zone 1 and 2 where some flats are on the market at around 16,000 and 17,000 €/per square meters on average, and sometimes more than 25,000 €/m2 for premium addresses. This is still 70% more than in Paris but in the last 2 years, average prices have begun to fall, which is not the case for the French capital, quite the contrary.

The latest publication from LonRes, a leading data source and network centre for property professionals in London, reveals that the situation is similar to a mini crash. In Q1 2019 properties valued under 2 million pounds in London (around 2.3 millions €) suffered the worst decrease for the last 10 years; a stunning -10% in 1 year only.

This is mainly due to the months of political instability and the probability of  a No Deal Brexit growing in the mind of investors and corporates. According to Marcus Dixon, lead researcher at LonRes, Property owners have started to become more inclined to accept offers lower than what their property was previously valued for because of the unpredictability of the political events and the risk for even further decrease in value.

French Private Finance views

The market is showing an interesting dynamic. The extremely hot UK market is cooling off and the Paris property market is booming due to the Parisian returners and the wider interest in the Grand Paris project, which is rejuvenating and improving many areas. The French mortgage rates available in Paris are some of the lowest in France. This is due to the high liquidity of the market, which means that banks can be confident the property will sell quickly, which leads to lower mortgage rates to buy property in Paris.


The Grand Paris, or how to make the capital more attractive!

paris

The project Grand Paris should take about 20 years to complete. It aims to create a united cluster seven times bigger than the current city of Paris, with a population 3.5 times bigger. The challenge consists of transforming a region that has been up to now characterized by its star shape into a more homogeneous territory.

What is the current size of Paris?

Paris “intra-muros”, meaning the part of the city located inside the ancient walls (now disappeared) is a very compact area of 100 square kilometers and 2,2 millions habitants. Its image of a closed city has been reinforced by the ‘Great Boulevards” built along the paths of the ancient fortifications, the ring road and the new circular tramway.

A large-scale project

The Grand Paris will include the City of Paris, the Seine-Saint-Denis, Hauts-de-Seine and the Val-de-Marne suburbs and several other neighborhoods situated on the outskirts.

Source : www.parisdigest.com  

Together, they’ll create an area seven times bigger than the historical Paris. Once the metropolis expansion is completed, Paris will house 7,5 millions inhabitants, more than half of the population of the ‘Ile de France’ department, representing 25% of the country’s wealth. The project aims to confirm the status of Paris as a world economic power and an example for sustainable development. The successful bid of the city for the Olympic Games in 2024 and its desire to build the reputation of a European financial center after Brexit is one of the steps the city is taking to detach itself from the touristic image it has. Another objective of the project is to improve the quality of life in the suburbs, mainly by improving and introducing new housing and transportation solutions.

A new transport network

The Grand Paris Express, as an automated transit network, will be the new metro of the capital city region. The Grand Paris Express will consist of a circular ring around Paris (line 15) and lines connecting developing areas (lines 16, 17 and 18). The Grand Paris Express will also involve the extension of existing metro lines. These new lines will surround the capital and provide links with the 3 airports, the business district and research centers. It will serve more than 165,000 businesses.

The Grand Paris Express in numbers
  • 4 additional lines
  • 200 km of new railway lines
  • 68 new interconnected stations
  • 2 million passengers a day
  • a train every 2 to 3 minutes
  • a 100% automatic metro system
  • 90% of the lines will be built underground
  • It will only take 34 minutes – instead of 53! – to go from Roissy Charles-de-Gaulle Airport to La Défense
  • It will only take 15 minutes – instead of 1 hour and 6 minutes! – to go from Orly airport to Paris Saclay University campus
A positive conclusion for all investors:

The ongoing project of The Grand Paris will have a positive impact on urban planning, housing, businesses and environmental protection. It offers a unique opportunity for all stakeholders, including developers, transport operators, public and private investors, construction companies, architects, urban planners and the population of Greater Paris.


How to Finance: €2,861,600 mortgage in Paris

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The Profile

Buying in: Paris 8ème
Property price:
 €3,557,000
Mortgage amount: €2,861,600
Mortgage type: Repayment
Mortgage term: 20 years
Interest rate: 2.54% fixed
Loan-to-value: 80%

The Context

Our client had a very good profile. However it was a bit difficult because he had withdrawn less funds from his Self-Employed activity than he had the previous years.

French mortgages are calculated on a DEBT TO INCOME ratio which generally cannot exceed 30-33%. That means that the total of your monthly commitments (personal loans, car loans, student loans, mortgages or rent) cannot exceed more than 30-33% of your monthly income.

Our client’s debt ratio actually reached 40%.

Our Approach

Thanks to our panel of banks, we managed to get THE French bank that would allow a debt ratio to exceed the 33% limit and go up to 45% depending on the profile, all this without requiring Assets Under Management (or collateral). The client ended up with a 80% loan to value mortgage (2,861,600 €) for a fixed rate of 2.54% on a repayment basis over 20 years.

Cerise sur le gâteau, we negotiated the bank fees to… 0€!


Luxury real estate: has Brexit increased property prices in Paris?

Paris

Summary of an interview with Nicolas Pettex, general manager of the Féau and Belles Demeures de France groups.

According to Nicolas Pettex, the Parisian luxury market is seeing new buyers coming from the United Kingdom. These buyers fall into two main camps. From British residents, usually residing in London, who are facing a move to Paris due to company relocation and from the French population living in London showing Brexit uncertainty. For those French residents living in London, concerns over the future value of sterling and preparing a possible return to Paris are the two main motivations for the current increase in interest  in the acquisition of an apartment in Paris. This aims to both strengthen “the share of euros in their assets” and provide a foothold in the Parisien property market.

Where are they buying?

These London based buyers, according to Nicolas, behave in the same way as the French, attracted to neighbourhoods such as the Marais, the 9th or the 11th for example. Nicolas also explains that the 16th is “back” on the market. It is attracting younger buyers, or families sensitive to the quality of schools. We can, to a lesser extent, apply this phenomenon to eastern Paris in its entirety.

What are the prospects for 2019

What Nicholas has under offer or under contract is the same in terms of volume and amount as the record levels seen in 2018. A trend he expects to continue in 2019. He believes the fact that what can be found on offer in the Féau group is a good representation of “the state of health of the real estate market” given its size and market share. Nicolas reassured us that there is no “yellow-jacket effect”, and, he expects a record number of visits to their website at this time when Parisians return from the ski slopes to begin looking for property again.

Do “very wealthy” young people behave differently in terms of preferred area?

According to Nicolas Pettex, there has been an increase in extremely wealthy young people seeking to buy a property in Paris. Like the other high end property buyers, they are aware that buying in one of the most beautiful cities in the world is to purchase something extremely rare. Unlike other major cities which see large scale new build developments, central Paris remains in a frozen state due to strict building regulations. These investors are not very sensitive to the price of the apartments and behave in the same way as people buying a piece of art.


How to Finance: €659,400 mortgage in Courchevel

Courchevel

The Profile

Buying in: Courchevel, French Alps
Property price:
 €952,000
Mortgage amount: €659,400
Mortgage type: Repayment
Mortgage term: 20 years
Interest rate: 2.15% fixed
Loan-to-value: 70%

The Context

Our client was a non-French resident living in London and buying a Residence de Tourisme in Courchevel.

Financing a residence de Tourisme can be harder than a normal freehold property with some banks refusing to finance this type of property because of the obligation to rent your property out a few weeks a year for many years (depending on the contract).

The client originally wanted an interest only mortgage so the rent could cover the mortgage repayment. However, Interest Only mortgages are not always available for the Residence de Tourisme developments, which was the case here. In addition, the client wanted to buy the property through a company to maximise his tax efficiency.

Our Approach

The client had to choose between a LTV of 70% over 20 years or 80% over 15 years. As he originally wanted a small repayment so that the rent could cover the payments,  it was a no brainer to pick the deal at 70% over 20 years (the rates were identical).


How to Finance: €510,000 property in Paris

paris

The Profile

Buying in: paris 11ème
Property price:
€510,000
Mortgage amount: €408,000
Mortgage type: Repayment
Mortgage term: 15 years
Interest rate: 1.80% fixed for the duration
Loan-to-value: 80%

The Context

The client wanted the highest LTV possible at the best possible rate as she was limited with her personal contribution since she had just paid off the mortgage on another secondary residence.      

The bank accepted to tick all of her boxes,  however it did  not accept to finance the real estate agents fees. These must be paid from the client’s personal funds.     

Our Approach

In order to reduce the deposit at its maximum, we asked the real estate agent and the vendor if we could re-write the compromis de vente and add the real estate agent fees to the purchase price. Though it increases a little bit the notary fees / mortgage tax and the amount of interest paid over 15 years (by a few thousands), it allowed the client to keep about 20,000 € of her personal funds at the moment of the purchase, funds she could allocate to actually decorate the property.

The client was very pleased by the solution as we answered her short term issue. The extra interest paid could be solved by repaying the mortgage early later on.


French property transactions stabilise near record highs with outlook bright for 2019

Property Prices

Overview

2017 saw a record number of transactions in France at 960,000. This number has dropped only slightly to 957,000 in 2018. The forecast for 2019 would seem to be continued volume at these levels as the main conditions are all set to stay the same; ultra low interest rates, slow price rises and high turnover of property.

Slow Price rises

The average price increase across France in 2018 was 2.9%, which is a relatively slow and stable growth rate which we have been accustomed to over the past 20 years. Of course, there are always local variations and in recent times a lot of the stronger growth has been coming from Bordeaux and Lyon. Last year was no exception with Bordeaux registering growth of 9% and Lyons 6%. Paris and the other big brand name ski stations kept pace with the average whilst growth was more anemic along the Cote d’Azur.

Ultra low rates

The main driver of this continued growth across the majority of the country is of course the low interest rate offering which saw the average effective mortgage rate in France drop to its lowest ever rate of 1.5% in November. At the same time, the amount of outstanding loans in France has reached an all time high of just over 1,000 billion euros. At the time the rate of inflation in France was 1.9% meaning that the real cost of borrowing was below inflation which is a rare event in a rising market. Since then, inflation has fallen to 1.2% in January yet the 1.5% fixes available for 20 years at a net 70% Loan To Value still looks incredibly attractive.

High turnover of property

Paris is the standout example where demand is extremely high currently. In central Paris, agents have approximately 20 clients for the most common property search enquiry, such as a 3 bed property at €3M or a 2 bed at €1.8M. There is a lack of stock which is affecting buyers and agents alike with properties not staying on the market for very long, sometimes only long enough for a visit of the apartment by video link at which point an offer is made. The same is true for well priced, well located in many other regions where the Brits like to buy.

British buyers still number 1

Of the 957,000 transactions over 55,000 were made by foreign buyers, up to 5.9% from 5.7% the previous year. Whilst the number of Brits buying as a proportion of it is down from 33% in 2016, British buyers still account for 25% and, as they have been for the last 10 years, remain the largest group of international buyers in France representing close to 14,000 transactions each year. The reduction has most likely been the result of the EU Referendum but we can still see large strength from British based buyers with 65% of British buyers not resident in France at the time of purchase.

For more insights about the real estate climate in France and to receive advice on cross-border transactions and finance, don’t hesitate to get in touch.


How to Finance: Mixed €900,000 Mortgage in Èze

Eze Village

The Profile

Buying in: Eze, South of France
Property price:
€900,000
Mortgage amount: €750,000 + €150,000
Mortgage type: Interest Only + Repayment
Mortgage term: 2 years IO + 7 years repayment
Interest rate: 2.3% fixed + 1.16% variable
Loan-to-value: 100%

The Context

The client was a retired Doctor who has some property investments in both the UK and France. He was eager to buy a new villa in a small village called Èze near Nice. He already had a mortgage-free property in the same town, but had decided to upgrade. He did not want to sell the existing property immediately as the rental of the property was going well.

Having discussed the options with the client’s existing bank, we confirmed that the bank could not offer an interest-only product as in their view the net assets in his portfolio were not sufficient to match their strict criteria. Furthermore, they refused to consider a mortgage on a 20 years on repayment basis as the client would be over 80 years old at the end of the term – the maximum repayment age. We tried decreasing the duration of the mortgage, however, it was not possible due to the affordability ratio.The shorter the duration, the more the monthly repayments. As a result, the criteria of below 40% debt ratio was not met to support the new mortgage.

Our Approach

At that moment, we decided to apply for a mortgage with a private bank in Monaco. The private bank in question has no limit on age criteria and they are more relaxed about a clients debt to income ratio. Here, the bank looks at all the committed expenditure vs income too, however, when the ‘rest-a-vivre’ is more than a couple of thousand pounds a month, the bank will be satisfied that the client has enough money left over.

The private bank we’ve worked with offered up to 100% LTV with a side investment of 30% to be deposited with the bank. We could also look at a short-term interest-only bridging loan, as the client is intending to sell his other apartment in the same village. Because of the so called ‘promesse de vente’, the bank was happy to lend on an interest-only basis as they were satisfied that this part would be paid off by the client when selling the property. This has been provisioned for 2 years with a possibility of extending for another 2 years if the criteria were met.

The charge that is put against the property to be purchased as well as up to 30% LTV of the loan amount is asked in cash collateral. This acts as an additional security, but the idea is that the bank can show the client how they can grow the invested capital with the bank. Private banks look for the longer term relationship with their client’s and want to impress the client with how they manage their portfolio.

In the end, we’ve managed to place the mortgage with the private lender on split basis where the majority of the loan was put on to a interest-only part on a two-year renewable deal. As long as there is a secondary property to be sold in the near future, the bank is happy to renew the deal at their discretion. The 7 year repayment had a low-start initial period of 2 years – essentially an interest-only period before the mortgage switches to repayment. After that the month payments were increased.