The French mortgage application process | part 2
1 – FIXED OR VARIABLE RATE?
The majority of loans in France for French property utilise a fixed rate for the term. Fixed rates are available over 10, 15, 20 and even 25 years. The rate is fixed for the entire duration of the mortgage. This offers a high level of certainty as to the monthly payment.
The majority of French variable mortgages are capped, meaning there is a maximum rate that the mortgage can reach for a set duration. The duration of some 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 to the amount you pay of 2-3% per year. Due to the current fixed rates, French banks are now offering relatively few variable rate options.
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. 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 various offers on the market.
Good levels of security
These extra features offer peace of mind to the prospective borrower in France but also vary from bank to bank. Borrowers should make sure they have a good understanding of what is available.
2 – THE APPROVAL PROCESS
The documentation will be received and reviewed by an underwriter who will check the affordability and review the documentation. He/she will raise questions and ask for further clarification or documentation. Once that hurdle is cleared, the underwriter will send the application on to a risk committee and/or compliance committee depending on the bank. For a large loan, the application may pass through several more committees before approval.
Purchase through a company
If you are buying the property inside a company structure, you will have to provide the name of the company and perhaps the draft statutes at this stage. The loan can be approved with just the drafts but the mortgage offer will not be printed until the company has been finalised together with the bank account for the company, which may well require a trip to France. So be prepared!
3 – LIFE INSURANCE AND FRENCH BANK ACCOUNT OPENING
Once the rate has been agreed and secured, then the required French life assurance can be sorted out. This process involves completing a medical questionnaire and possibly undergoing some tests and waiting for the results. Then the rate of the insurance can be added to the mortgage contract.
Eligibility for the insurance
Age is an important consideration when setting life assurance rates in France. Younger applicants will obtain cover with lower monthly payments, whilst older applicants will pay more.
If you have had any medical problems in the past, or you are borrowing a large amount of money, you may find that the French life assurance company will ask you to undertake medical tests.
You may be refused life assurance altogether if you have had serious medical problems. However, it may be possible to arrange a loan without life assurance in some cases or to assign UK life assurance cover, but only for a reduced selection of French mortgage products.
Opening a French bank account for individuals
Opening a bank account in France is a crucial part of obtaining your French mortgage. The point at which you have to do this is normally three or four weeks after you’ve started the French mortgage application process.
Whether you plan to live in France or have a second home in the country it will all be easier – and is generally a condition of the loan – if you have a French bank account.
Opening the accoun
The process for opening a bank account in France is very quick and simple for an individual. Firstly, you need to fill in and sign the appropriate forms. They will be in French, but we provide English translations of them so that a comparison can be made.
In addition to a scanned and completed form, there are also a number of other documents required in order to open a bank account in France:
- Signed application form
- Copy of valid passport
- Marriage certificate (copy)
- Recent utility bill (copy) – less than 3 months old
- Proof of income (tax document, accountant’s letter or last two payslips)
- The reservation contract/title of the property in France
Once these items have been provided, we normally just need 48 hours to open an account.
However, most lenders will want you to open a bank account in their own branch and will require a face to face meeting. Be ready to travel to France for this part!
If you wish to open a joint bank account you have the option of the account being held as M. et MME. SMITH or M. ou MME. SMITH. In the former case both partners must sign and in the event of one partner dying the account is frozen until the will has been proven. If you wish to have a joint account where either partner can sign and draw on the account then you must choose the second option. A quick French lesson: ‘et’ means ‘and’ whilst ‘ou’ means ‘or’; M stands for ‘monsieur’ while MME means ‘madame’.
French bank opening hours are quite variable, depending on the location, size of branch and so on. In general, they are open from 09:00 to 17:00 Mondays to Fridays. Some banks will open on Saturday mornings and late on certain evenings, though this is more likely in larger towns. Lunchtime closing is the norm in smaller towns.
Opening a bank account for a company
The process to open an account for a company is not that straightforward unless the bank providing the loan also opens the account. If we have to use a different bank then it will most likely require a trip to France.
4 – OFFER AND COMPLETION
With the French account open (so that the direct debit form can be completed) and the life assurance in place, the bank will be ready to print the offer and to send it to you via DHL, FedEx or similar.
Once you have received the offer you will have to wait 11 days before you can sign and return it. Unfortunately this “délai de réflexion” cannot be waived or avoided. The only exception to this is that some banks will allow you to return the offer the next day if the mortgage offer is in the name of a company. This varies from bank to bank and some argue that as there is a personal guarantee involved from the clients (who are the guarantors of the company), the full 11 days should be waited.
During these 11 days you may use the time to either prepare a trip to France to sign and complete the purchase and transfer your personal funds; alternatively you can arrange for a power of attorney to be completed so the Notaire (the French legal representative that must be engaged for all property sales) can sign on your behalf.
Power of attorney
Arranging a power of attorney is a simple task, though there is some administration to do. The Notaire will arrange this “pouvoir” (power) once he/she has a copy of your mortgage offer and send you a copy. This document and the mortgage deed have to be completed in front of a public Notary in the UK and then the document has to be “apostilled” at the Foreign and Commonwealth office to ensure the validity of the witnessing signatures. There are services that can get this done for you – let us know if you need an introduction.
The minimum time between the bank receiving the offer and transferring the funds to the Notaire so that the purchase can complete is 2 to 3 days. It is not worth planning on less than a week, however, just in case there are any delays. Completion of the purchase takes place in the Notaire’s office – either with you physically present or by the Notaire alone with the requisite power of attorney.
The Notaire will send a breakdown of all the funds which have to be transferred. This will include the “Notaire fees”.