French Mortgage Market

Introduction

Over the past several years, housing prices have been consistently decreasing in France due to its struggling economy. However, property sales in France have increased in 2014 because interest rates are low. According to the Global Property Guide, “the average rate on new housing loans with initial rate of fixation of more than a year was 2.89% in August 2014, down from 3.13% a year earlier.” John Busby of French Private Finance reported that, “These are the lowest rates we have seen for French mortgages this century or last.” Below is a graph depicting interest rate activity over the last 10 years. 

The number of existing homes sold in France over the last year has risen by almost 8%. However, French construction of new homes has fallen to its lowest for more than 15 years. According to the Global Property Guide, new housing starts have fallen by 13.2% from the previous year. This is partly due to a new rent control law capping rents in more expensive areas such as Paris.

Purchasing Property in France

Properties are available to both French citizens and foreign buyers.  There are no restrictions on foreign ownership. Most property in France is freehold, although leaseholds are also available.  Apartment ownership is most likely to exist in two forms of freehold: co-ownership and volumes. Co-ownership requires apartment owners to join an association where votes are taken on important decisions. Each owner is equally responsible for shared living facilities. Volumes have been adapted mostly for mixed-use developments.  

In France, most transaction costs are incurred by the buyer and are moderate to high. Property purchase fees incorporate registration, notary, agent fees, etc.  Registration fees (transfer fees) consist of several components: a single property registration tax rate (3.6%), a commune appropriation tax (1.2%), a state appropriation tax (2.5), and an additional state levy at .2% (normal rate) or .1% (special rate). Land registry fees are .6% of the purchase price.  French notaries are required for property purchase.  

There are several notary fees involved in a property purchase including change of ownership fees, charges of mortgage security, and miscellaneous charges that are incurred during notary process.  The majority of notary fees are fixed and non-negotiable as set forth by the Chamber of Notaries. 

Real estate agent fees can be shared by the buyer and seller and are usually around 3-10% of the selling price plus the Value Added Tax, which is set at 19.6% of purchase price of newly built properties (existing properties older than 5 years are exempt from VAT). Agent fees are typically included in the asking price and are indicated by the letters FAI (“Frais d’Agence Inclus”). 

French Property Financing Options

Standard Loans

“Prêt amortissable/Prêt classique ” (Capital Repayment Mortgage)

The standard capital repayment mortgage is offered as either a straight-line or increasing capital repayment plus interest, which is paid off each month over the duration of the mortgage. The maximum amount of the loan is usually around 80%, with fixed or variable interest rates.  Most lenders are not prepared to lend under the minimum amount which is generally around €50,000. 

“Prêt In Fine” (Interest Only Mortgage)

Interest only mortgages are not as common, although more French lenders are beginning to offer them as part of their services.  However, the eligibility requirements are much stricter.  With an interest only mortgage, the borrower pays only the interest portion of the loan.  Repayment of the capital is normally secured through an endowment policy that pays off the capital at the end of the loan period. 

“Prêt Relais” (Bridging Loan)

This type of loan is provided for people who would like to purchase a new habitation before selling their current residence. The loans are available for up to two years pending the sale of existing property (providing there is enough equity in the old residence). The borrower generally pays only the interest component the loan, with the capital component paid off after the sale of their present property. Different lenders may provide different schemes for Bridging Loans so it is important to ask around if this is your preference.

Regulated Loans

“Prêt a Taux Zéro (PTZ)” (0% Rate Loan)

The French government is using 0% rate loans in order to encourage property ownership.  PTZ loans are used on a complementary basis to that of the principle loan, so the maximum value of the loan is relatively low.  PTZ loans are primarily aimed at first-time buyers and restricted to new homes. However, disabled persons unable to work and those whose homes have been destroyed by natural disasters are eligible as well.  As a condition of the PTZ, the property cannot be rented out as a furnished residence, nor may it be leased seasonally.  PTZ loans are by far the most complicated loans provided by the French government, so consulting may be necessary. 

“Compte Epargne Logement/Plan Epargne Logement)” (House Purchase Savings Accounts)

CEL and PEL are both interest earning bank accounts, which allow access to a subsidized mortgage.  These accounts are of greatest advantage to those who are not in a rush to obtain a mortgage and also those who seek an income tax shelter.  They are also useful for those who seek to assist family members with a house purchase. 

“Prêt Conventionné (PC)” (Contracted Loan)

Only of interest if you are a permanent residence of France. A PC can be used for the acquisition or improvement of a property and there is no test of resources for the loan. The PC can fund up to 100% of cost.  Rates of interest are about +6% on a fixed or variable basis, quite expensive by French standards.

“Prêt d’Accession Sociale (PAS)” (Social Purchasing Loan)

The PAS is similar to the PC except there is upper income limits on the loan. The PAS can also fund up to only 90%, while the PC can fund up to 100%.

Some other regulated loans may be available according to your living situation (i.e., government employee,  French employer, Paris resident, etc.)

 

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