Mortgages: Practicalities & Problems

Written by Riviera Reporter

It’s a big decision for most people ... Taking a mortgage, that is.
Phil Heinlein looks at practicalities and problems

Remember to start with that you’re in France. The business of acquiring property here is likely rather different from the way it is back where you come from. That’s certainly the case with the UK whose citizens are very active in the local property market. Then think seriously about your overall situation. For a lot of people buying a home is one of the major decisions of their life, made maybe only a couple of times, even just once. I’m always struck by how little thinking sometimes goes into it.

“A totally realistic assessment”
If you leaf through this magazine you’ll find advertisements from banks who are offering mortgages and also from mortgage brokers – that is, specialist advisers who will do most of the negotiation for you. So where do you go: to bank or broker? There’s a lot to be said for the second option. Firstly, a broker will sum up your situation quickly and make sure that your ambitions and expectations are realistic. Secondly, and this is a key point, he will have ongoing relationships with several lending institutions and will be used to dealing with them. On their side, they know and trust the brokers if, like those who advertise here, they are established members of the community. As an individual borrower you would find it difficult to set up a similar relationship on a one-off basis. Of course, once you’re dealing directly with the details of a mortgage you will have a personal rapport with the bank. The major local lenders – Barclays, BPCA, Jyske Bank, Nordea – will deal with you in English. However, as one recent borrower put it to me, “there’s a mass of paper involved and it’s comforting to have someone who’s entirely on your side to spell it all out for you”.

What a broker will want to determine is whether you will be able to sustain the payments on the mortgage you are seeking. This entails a totally realistic assessment of your likely continuing income and outgoings. Any calculation should include not only the cost of servicing the loan but also likely outlay on renovation and maintenance. Actually, this can be factored into the loan but if this isn’t done there may be financial difficulties later. Potential borrowers shouldn’t be too carried away by talk of “hundred per cent loans”. These exist, sure, but they are not so common and, taking into account all the various charges and other elements, a realistic supposition would be that a buyer will often need to come up with twenty-five to thirty per cent of the purchase price of a property. A mortgage broker will usually be able to tell you from experience which lender will be ready to give you the loan you’re ideally looking for.

“The trend: mortgages become longer”
In general, French banks are more reluctant to lend than, say, their UK equivalents. That’s one reason why repossession is almost unknown. Lenders are prudent, borrowers usually well-briefed. As to rates and the length of a mortgage, advice is crucial. Rates first: these can be fixed or variable, the fixed rate being higher than the variable. The obvious advantage of a fixed rate is that you know how much you must pay over the whole term. Variable rate loans may be fixed for the first two or more years, after which they can be modified to take account of prevailing interest rates although usually within pre-set limits (3 per cent, say, of the starting rate). Normally, you can change a variable rate mortgage to a fixed rate at any time. There’s usually a redemption penalty, around 3 per cent of the outstanding capital, for early repayment of a fixed rate mortgage. As I write, rates are between 3.3 and 3.9 per cent for variable mortgages and between 4.5 and 5.5 per cent for fixed. As to settling on the length of a mortgage, the major factor in determining rates, the need for realism is paramount. Some borrowers are attracted by going for the shortest possible repayment period. This can lead to difficulty if their financial circumstances change and to the need to renegotiate the loan. Currently, the trend is for French mortgages to become longer, with a move up to 25 years in some cases, although the average is still below 20 years. One point to remember is that with a longer repayment period and a lower interest rate money is freed up for other purposes – could be for profitable investment – and the mortgage payments will often bring a tax break.

“Elasticity in the system”
Whether you decide to work through a broker or go direct to a bank, what do you have to do in practice to get that loan? Once you are in serious negotiation with the bank you will have to provide proof of income and an indication of outgoings (such as other interest payments). For those in employment, three payslips are required plus a tax return. In the case of the self-employed audited accounts have to be produced with a tax return. According to French regulations repayments shouldn’t exceed one third of a borrower’s income (this can be calculated on the basis of a couple’s income). However, as most mortgage brokers will admit, there’s rather more elasticity in the system than might first appear. When an offer is made there’s a 10-day cooling off period; it must then be put into application within 4 months. Anyway, good luck!

Interest Free Loan?
What about an interest free loan? A deam? Nope. For those with limited resources – and that includes some of our readers, no denying it – it’s a real possibility. And the government has just extended its system of prêts à taux zéro (PTZ) to cover more households.

Here’s how it works. Your taxable income as a single person is not more than 18,950, as a family (say a couple with two children) not more than 32,290. You want to buy a home. You’ve saved a certain amount (your apport personnel, as it is called) and you can get a smallish loan elsewhere, but there’s still a shortfall. That’s where the PTZ comes in.As a single living in the provinces – it’s a bit different in Paris – you can get an interest-free loan of up to 11,000, as a four-person family of up to 21,500. That’s for buying new property, amounts for old property are somewhat lower. Anyway, for those who qualify it’s a good deal.

To find out more visit www.logement.gouv.fr – or pick up documentation at your bank.