Mortgages options in France
There are about 5 different mortgage options in France. Each has its own advantages and inconveniences but you will definitely be able to find the solution that suits you best and match your financial needs / projects. Which one is for you?
The Classic French Mortgage: Lock in long term value
The standard mortgage option in France is repayment. You pay both principal and interest which means that the loan will be repaid in full by the end of the term (should you keep up with the repayments). Repayment mortgages are available on second home purchases, buy-to-let investment properties and main residences. This type of financing provides the most security to the borrower. In fact, it is very easy to budget for the payments as French lenders can offer fixed rates for the entire duration of the mortgage.
Within the Classic French mortgage, we can differentiate a couple of products:
- The Deposit focused where the deposit is as low as 15% of the purchase price. Expect a rate of 2.25% fixed over 20 years.
- The Lower rate focused where the rates can be between 1.50% and 1.80% fixed for 20 years. In this case, the deposit is about 30%.
For those looking at holiday lets, the break even point is generally around 50% loan to value (LTV). This means that the rental income covers the mortgage payments and you will own the property outright in 20 years time. Property is a great store of value.
The Lesser spotted French retail banking Interest only mortgage
In our experience, a finance professional will generally opt for an interest only mortgage – you only pay the interest and will owe the same amount of money to the lender at the end of the term. This option frees up capital and allows investors to seek higher returns in financial markets as well as lowering the cost per month. This means the property rental income covers the mortgage with less capital employed. For instance, a fund manager that can achieve a 7% annual yield will have nearly double his investment in 10 years time. If he makes 10%, interest payments on the French mortgage will be taken care of as well. Rental income on the property can be used to rebalance the portfolio or make early repayments on the mortgage thereby mitigating risk. Again, this option has some serious wealth building potential but requires a bit more skin in the game and is not suitable for the risk averse.
For this cashflow focused option, the LTV is between 60% to 75% of the purchase price with fixed rates between 2% and 2.40% over about 15 years.
The mixed and match for those who want a bit of both worlds
Half your mortgage on a capital repayment basis and half your mortgage on an interest only mortgage. With this option, you have the ‘guarantee’ that half your debt will be paid off by the end of the term (should you keep up with your monthly payments) while keeping some flexibility on your monthly cashflow.
The mixed & match option offers a Loan-to-Value up to 80% overall (40% repayment and 40% interest only). The repayment mortgage is generally for 20 years with a fixed rate of 2.25% and the interest only is over 14 years with a fixed rate of 2.35%.
The Private banking mortgage
It is possible to get a 100% LTV in France. In this case, the borrowers only have to pay for taxes and fees upfront which are not financeable. This type of loan is offered by private banks who are keen on building relationships with high net worth individuals (HNWIs). The borrower will place a minimum of 30% with the lender as a collateral. The industry standard is around €1m in assets under management (AUM), though we can find options with a lower amount. Private banks can be flexible with the way they invest your money and clients can choose from a large range of securities as long as the overall asset allocation is deemed appropriate. This means that borrowers can potentially transfer an existing portfolio and keep the collateral in its original currency. So, disregarding the taxes and fees, you could get yourself a brand new property without any changes to your current financial position.