May 2016 – French Mortgage Transaction of the Month

Cash buyers use finance to optimise tax & repayment structures

With French mortgage rates so low, even those with enough cash to be able to buy outright are using finance to purchase their properties.

May’s French mortgage transaction of the month is on a large apartment in the Three Valleys ski region. The clients opted for an interest only route on a loan amount of €800,000 for two reasons. Firstly they wanted to keep their net assets in France down to a minimum. They were planning other investments in the country in the future and this would mean the €1.3m net asset level where French wealth tax would kick in would be reached fairly soon without careful planning.

The second reason was to keep the monthly costs down. On a repayment basis the monthly amount would have been around €6,000, compared to around €2,0000 per month under an interest only structure.

This interest only mortgage was also divided in two, one half on a fixed rate the other on a variable rate. Whilst a fixed rate gave them security over their payments in the long term, they wanted to have the option to repay parts of the capital early, which under a fixed product means extra fees. They therefore took 50% of the mortgage under a variable product. Whilst there is less security over the rate long term, this allows for early repayments.