Is it now easier to get a mortgage in France or the UK?
From the 26th of April new FCA rules and guidelines came into force in the UK with a view to tightening up the criteria for calculating affordability and obtaining a mortgage in the UK.
On the face of it these new rules are more stringent that those in France as the table below shows:
(Please click to see larger version)
When we first started offering loans in France, UK clients would be surprised at the level of detail required by a French bank. As banks in France do not have access to a credit check in the UK, a forensic picture of the clients financial situation is built up by tracing and verifying income via letters from employers, payslips, tax returns and company accounts. Outgoings for loans, personal loans and mortgages are verified and confirmed via statements and bank statements.
In the past a UK mortgage broker could bypass the requirement for this level of documentation by using a fast track process and a simple credit report. It would now appear that most mortgages in the UK are now also subject to the same, if not a higher level of scrutiny as we are used to in France. This has also meant that the process in the UK now takes about 6 weeks, instead of only a couple of weeks.
One thing which the French seem to do better is have a clear system of affordability. You are allowed to spend 33% of your monthly gross income, averages of last 2 years bonus, commissions and dividends are also included on your financial commitments for loans, personal loans, car loans and alimony. Expenses like school fees, insurance payments and entertainment costs are not taken into account. Once this calculation is done you get a definitive amount to spend each month which is nice and clear. For example each €100k costs approximately €500 per month over 25 years, €600 per month over 20 years and €700 per month over 15 years (which can be the figure used to calculate how much can be borrowed on an interest only basis.
In the UK, banks tend to keep their calculations more of a secret and are less clear. Calculators are usually made available to brokers who must shop around to see what can be borrowed with each lender for a specific profile. One area were the UK is certainly better is the consideration of buy-to-let income. If a property washes its face, the investment outlay is largely ignored, whereas in France the mortgage on the buy-to-let goes in the expenses column and the income is largely added to the income column, of which you only get 33%. This makes it very hard for international investors with large buy-to-let portfolios to borrow in France.
A downside of the new UK rules is that potential future interest rate rises are now going to be priced into the affordability (why not future income rises also?). This will further reduce the amount 1st time buyers can afford, pushing them towards more expensive, higher risk lenders.
Overall it seems that the UK has become more French in looking at affordability more closely and putting rules in place to “protect” the borrower from incurring too much debt. The process now takes a similar amount of time on both sides of the channel and is subject to similar levels of checks and documentation. In terms of rates, France still wins as there are really only life time tracker mortgages and lifetime fixed rates of offer. You can currently fix at 3.45% for a 20 year term at 80% LTV which is about the cost of a 5 year fixed rate in the UK.