Whilst the average duration of a French mortgage taken by a non-resident is 20 years, often clients end up choosing to gear their mortgage in France towards a longer term product to ease the process of buying another property in France.
In this month’s French mortgage transaction of the month, the client, a 48 year old buying a €640,000 ski apartment in Courchevel opted for a fixed rate repayment mortgage to be spread over 25 years at a rate of 2.45%. Over a duration of this length the maximum loan-to-value rate is 80%, therefore requiring a 20% deposit.
Most of the time clients utilising French mortgage products with durations longer than 20 years are asked to do so to improve their affordability calculations (increasing the duration spreads out the mortgage repayments, thus reducing them, in turn for a slightly higher rate).
However, with rates being so low across the board, especially compared to those available elsewhere in Europe (partucularly in the UK) occasionally clients opt for longer terms regardless of the slightly higher rate. Why? Sometimes it’s in order to maintain a preferred level of disposable income, but mostly it’s with a longer game plan in mind.
By taking a longer term and therefore having lower monthly payments, the affordability profile is better than it would be on a mortgage with a shorter duration, thus substantially increasing the chances of being granted additional lending on another property investment.
In real terms, per €100,000 borrowed, the monthly cost of a 25 year fixed rate repayment mortgage (at 2.45%) is around €446, compared to the 20 year fixe rate repayment mortgage (at 2.15%) monthly cost of €513, a difference of €67 per month per €100,000 borrowed. Using the Courchevel example above, the property of €640,000 had a loan of €512,000 (at 80% LTV), which equated to a monthly payment difference of around €343 between the two products, or just over €4,100 a year.
For further information on French mortgages and how to calculate your affordability for a French mortgage please get in touch with one of the team.