In Part 2 of this series, Oliver Phillips of PFS France (http://www.propertyforsalefrance.co.uk/) takes a look at common approaches to financing french property purchases.
So you've found your perfect home, you know the area, the people, and you've appointed your own Notary. You've also had an independent valuation and will be getting the property surveyed to make sure you understand what you are buying?
Your next thought is likely to be financing? Generally, you might look to finance your purchase in one of two ways; either using the equity in a UK property by way of remortgage or by taking out a second mortgage on the French property. Both methods are subject to exchange rate risk but in different ways.
If you decide to remortgage an existing UK property the finance would normally be raised in £GBP. Raising the mortgage in euros may result in a fairly substantial foreign currency conversion or exchange fee to pay. Make sure you are aware of how much this will be. Secondly the timing of your purchase is important. A weak pound against the euro will inflate the cost of your property, and require you raise a larger mortgage, but conversely a strong pound against a weak euro, could make remortgaging your UK home a cheap way to buy your home in France. However once the mortgage is raised, you will always pay the same monthly fee regardless of future exchange rate changes.
If you want a second mortgage on the French property itself it might be possible to deal with a French branch of your British Bank and this is worth looking into. A euro mortgage with a French bank will always be for the euro cost of the property, so you avoid exchange rate risk on the mortgage amount, but monthly repayments though the same in euros may seem more or less expensive as the euro exchange rate moves against the pound.
French mortgages are not that different to UK mortgages; they are usually of the repayment type with a term of between 5 and 20 years. As in the UK, fixed rate and variable rate options exist and redemption penalties will sometimes apply. A larger deposit will often secure a more attractive interest rate but the minimum deposit is 20%. Arrangement fees of around 2% are also normal on French mortgages.
French financial services legislation dictates that life insurance to cover the mortgage is taken out and also that a mortgage offer once made, must be accepted no earlier than 10 days and no later than 30 days after the offer has been made.
This article only provides a general appreciation of how French property can be financed and it is not advice. Guidance should be sought from a specialist who is qualified to advise on the best method of financing in your specific circumstances.
Copyright 2005 Oliver Phillips. May be freely reproduced "as-is" for private and commercial use.
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