Should I get a UK mortgage for a French property?

Posted on 22 Jul 2020 in Market
Should I get a UK mortgage for a French property?

Borrowing abroad is possible. As a citizen of a member country of the European Union, you have the possibility of taking out a loan from a bank domiciled in one of the countries of the EU. But beware of local particularities! Concerning the UK, arranging a UK mortgage for a French property is a very hard task. French banking institutions are the most common lenders to print mortgage offers.

Euro or pound? It depends on where you stand on the risk

  • When you take a loan in pounds, you make sure that the monthly payment is not affected by the value of the exchange rate because the monthly repayment is in GBP.
  • However, the sale of the property is linked to the value of the exchange rate, it is favorable to sell the property when the Euros is stronger than the pound compared to the exchange rate on the day of the purchase.

Example: if a property is worth €100k or £90,100 with a current exchange rate of £1 = €1.10. Let’s say your mortgage is £90,000. Should the GBP get weaker by 20%, the exchange rate would then be £1 = €0.88. Your mortgage would still be £90,000, your monthly repayment is the same but your property is now valued at about £114,000. That’s a great time to sell.

Property ValueMortgage AmountIf the GBP gets weaker by 20%, the property value is now
100,000 €100,000 €
£90,100£90,000£114,000

Property Value

Mortgage Amount

Currency exchange cost

Mortgage registration tax

Interest rate cost perhaps

  • A loan in euros for a property  valued in euros means that the monthly payments are in Euros. Assuming your income is in GBP, it means the monthly repayment is affected by the exchange rate. The sale of the property is however not affected by the exchange rate providing that you keep the proceedings in France (or at least in Euros).

Example: the property is worth €100k and the mortgage is €100k. The monthly repayment over 20 years (assuming a fixed rate of 1.80%) is 496 € or £451 with a current exchange rate of £1 = €1.10. Should the GBP get weaker by 20%, the exchange rate would then be £1 = €0.88. Your mortgage repayment would still be €496 but would be now worth £564.

Mortgage AmountMonthly RepaymentIf the GBP gets weaker by 20%, the monthly repayment  is now
100,000 €496 €496 €
£451£564

Basically put, having the debt in GBP has an effect on the overall outstanding debt (big amount) while having the debt in Euros has an effect on the monthly payments (smaller amounts) hence less risky.

The risk on the monthly payment can also be limited in the event that you generate income in Euros (via the rental of your property for example). You only need to top up so the effect on the exchange rate is on an even smaller amount.

An advantage in terms of options for French mortgages

It is important to take into account that the advantages of borrowing in France are:

  • Low rates (around 2% and lower) 
  • Fixed for the long term (20 years, sometimes even 25 years)
  • High Loan to Values (up to 85%, with some options at 90% or 100% with 20% collateral)

(Correct as of July 2020)

The cost of borrowing in France is relatively cheap especially as you will rarely re-mortgage (hence spend more fees) as your rate would already be extremely low (compared to the UK where your fixed rate would be on 3-5 years maximum). So you end up saving money each month and on the long term as well.

For most of our clients, it is more understandable to take a risk on the monthly cash flow (which remains small amounts) thanks to the lower rates than to take a risk on the total value of the loan. 

It is important to know that in France, when taking a mortgage, there is a guarantee taken by the bank on the property called Mortgage Registration Tax (‘’hypotheque’’) which is about 0.5% of the mortgage amount for an existing property or 1.5% of the mortgage amount for a new build property. This guarantee allows the bank to repossess your French property in case of default of payments.

Equity release in the UK: an alternative solution?

Something easier to manage is releasing equity on a property you own in the UK. THe process is easier and faster than in France with eventually more flexibility in terms of affordability while French banks are quite strict. 

However, that means your UK property is eventually maxed out in terms of mortgage and you have a property in France that is officially unencumbered.

Since March 2019, no retail banks offer an equity release option in France. This means that it will be very difficult to increase the loan amount after the purchase, or even, if the property does not have a loan, release funds. So you cannot recover savings to finance other projects. However, there are more options if the property is valued over 2M euros as Private banks may be able to offer something.

As your mortgage is in GBP, to buy the property, you will need to transfer the whole amount to France in EURO which will occur some currency exchange fee (possibly 0.5% of the amount).

It is therefore preferable, in most cases, to take a loan in France and benefit from low rates over the long term in order to keep your savings for a possible mortgage in the UK for other projects.

Some crucial information you need to keep in mind:
Getting a UK mortgage for a French property can be harder (unless you do an equity release) because the guarantee (the property) would be based in another country which could prove difficult to recoup in the event of defaults of payments. Some UK Private banks (where you need to pledge assets under management, and those offers are limited to certain personas) can offer such deals but are not accessible to everyone and their terms may not be as interesting as the French banks.

Some crucial information you need to keep in mind

Getting a UK mortgage for a French property can be harder (unless you do an equity release) because the guarantee (the property) would be based in another country which could prove difficult to recoup in the event of defaults of payments. Some UK Private banks (where you need to pledge assets under management, and those offers are limited to certain personas) can offer such deals but are not accessible to everyone and their terms may not be as interesting as the French banks.

Tax optimisation may not be compatible with a UK mortgage.

Regarding new real estate acquisitions, it will be wise to favor financing with debt, and acquisitions through civil companies. The new wealth tax on real estate (IFI) in France won’t be compatible with tax optimisation if your home loan is in GBP (except with some UK private banks). It is totally impossible to do so when going through an equity release.

To resume, you have good chances to be stuck with a mortgage in the UK while also paying the French property tax. For more information on how IFI works, read our article : “The tax on your overall wealth (ISF) in France is now part of history. Please welcome the tax on real estate wealth (IFI). Is it more profitable for investors?”

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