Buying a new home in France - financing real estate in France
When entering the market for real estate in France the first thing you must do is consider what you can afford and work out a budget. You need to consider how you will finance the purchase of your home in France and whether a UK or French property mortgage is right for you.
You do not want to jeapordise your family’s assets so think carefully about what you are looking for and how much it will cost you. Do not simply accept the asking price of real estate in France. Do your research on comparable properties and find out about extra costs.
Arranging finance for your home in France
If you are unable to buy outright but remain determined to get a piece of real estate in France you must think about how to finance. Buying property is always a huge financial commitment, even more so in a country with different laws and banking systems. For this reason you should always seek professional legal advice at all stages of the process.
Most purchasers take out a mortgage as a way of securing the funding for their dream home in France. The question they face is whether to go for a French property mortgage or elect for a UK-based broker.
A French property mortgage secured on your home in France
Deposits for real estate in France tend to at least 20% of the value of the property. You may be able to obtain up to 80% of the value (not cost) of the home in France, depending on the individual lender.
Although the market for real estate in France is growing, the number of French property mortgage products available remains low. Interest rates are tied to the European Inter Bank Offered Rate (EURIBOR), which tends to be lower than the Bank of England rates.
Your monthly mortgage payments, and all other substantial financial outlays, should be less than one-third of your income. Using the home in France as security on your loan means the banks have no right to repossess your UK assets, even if you default on the loan.
Buying a home in France with a UK mortgage
A mortgage must be secured by property in the same country. Therefore, to buy real estate in France this way would involve releasing equity on your UK home.
Most lenders will allow between 75 and 96% of the value of your home to be released to allow you to buy real estate in France. More products and flexibility exists within the UK market. Although a UK mortgage may save you money in set-up fees the interest rate is likely to be higher.
There are also UK banks in France and they have introduced more features of UK mortgages to the French property mortgage sector whilst still offering low European interest rates. There may be other advantages and conveniences to going for a lender affiliated with your bank at home.
Currency fluctuation – a risk to your home in France
The risk French currency issues pose to the feasibility of you being able to afford real estate in France should not be underestimated. The volatility of currency fluctuation means that a home in France sold for €200,000 in December 2002 cost £127,400. Three months later and this had risen by a massive 8%, meaning the home in France was now £10,500 more expensive.
This is a serious consideration when buying real estate in France and attempting to decide on a UK or French property mortgage.
