Buying in: Grimaud, South of France
Property price: €1,950,000
Mortgage amount: €1,365,000
Mortgage type: Repayment
Mortgage term: 20 years
Interest rate: 1.70% fixed for the duration
The client was buying in the south of France the house next to his family house. His profile was outstanding and his professional situation excellent. All the lights were green for an 80% Loan to value.
But there it is. It is not called loan to value for no reason. The survey from the bank came back lower than the purchase price for 2 reasons:
- French banks are very conservative and risk averse. Should there be a default in the mortgage payment, the bank seizes the property and has to sell it to repay the mortgage. However, they take into account the location and the possible demand there would be and what price would allow a quick sale (within a month) which means the price would need to be dropped.
- The renovation works to be made in the house were not adding as much in value as they were costing as they were mainly decoration work.
Overall, the bank decided to reduce their loan to value to 70% to limit their exposure based on the value that came back from their expert.
Obviously, it came back as a shock to both us and the client. As mentioned above, the financial situation of the client was great so adding more deposit was officially not an issue. However it meant liquidating some assets and it created a bit of disbelief between the client and the bank.
In order to still provide the best possible deal for the client, we lifted our shirt sleeves and got to work. We managed to reduce the bank fees by 3 times and lower the rate of the mortgage from 2% to 1.7% on 20 years. For a mortgage of 1.365,000 €, that is a save of about 10,000 € on the bank fees and 46,000 € on the interest .