French mortgage products are designed to maximize security to 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 rate.
With an interest only mortgage (prêt infiné), as the name suggests you only pay the interest on the amount you borrow. If you borrow €100,000 at a 4% interest rate you will have to pay €4000 per year. After 20 years you will still owe the €100,000 and have to sell the property or find funds from elsewhere to pay back the money you have borrowed. Hopefully the property you bought will have appreciated in the meantime so you will have made a profit whilst keeping your costs down.
Interest only mortgages are the mortgage of choice for investors looking to make a return by selling the property for more than the purchase price.
The rates are generally 1-2% lower than UK interest rates. The Euro Interbank Offered Rate (EURIBOR) is used as the base rate, and generally there will be a margin of 0.5%-2% above this. Check online at the European Central Bank
The process of receiving an offer can take anywhere from a few days, to two or three months depending on when you produce your documentation and how quickly we can achieve final approval from the bank.
Once you have decided on your French mortgage, you will need to send us the required supporting documentation. When the bank has a complete file, they will send you a final simulation, before sending the file to their lending committee for approval, before the loan offer is made.
Upon receiving the offer, you must wait a minimum of 10 days before sending it back – “a cooling-off period”. You have one month to accept the offer. After you have accepted the offer, it is valid for up to eight months depending on the bank. You must complete the purchase of your property during this period. Extensions can be obtained in exceptional circumstances.
The Euro Interbank Offered Rate is the rate at which French banks and institutions lend money to each other. This is usually the base rate at the time plus a margin: for one month (+ 0.1), three months (+ 0.2), six months (+ 0.3) and 12 months (+ 0.4). Most French banks with a variable rate base their rate on the Euribor 3 month plus their margin.
The bank will charge a set-up fee, and will require you to take out their life assurance too. This varies from bank to bank. There is also “frais de garantie”, a mortgage registration tax which varies from 2% for lower priced properties to 1.25% for those in a higher bracket.
Some banks will arrange an account for you, while others will expect you to do it yourself. Your Athena Mortgages consultant will advise you on this, and help you set one up if necessary.
All the costs above are laid out in our Mortgage Information sheet – which you receive with your quote from Athena Mortgages.
In order to secure the rate that you have been quoted, it is necessary to send us all the required documents for the loan application. Upon receipt we can forward them to the bank that day, and reserve the rate for you. Rates can change twice per month so speed is essential.
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. Even pure variable mortgages offer a decent level of protection. The majority of variable rate loans are ‘elastic’ and can stretch by up to five years if rates increase so that your mortgage payment will remain the same up to an increase of approximately 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.
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. 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.