French Equity Release Mortgage

A French Equity Release Mortgage lets you release some of the equity capital locked up in your French home.

French banks are very cautious when evaluating applications for equity release. They will only permit you to release equity if you are intending to use the funds for “a qualifying purpose”.

French banks do not permit the use of equity release to augment income. Consequently if you are “asset rich but income poor” you are unlikely to pass a French bank’s mortgage qualification tests.

The French Equity Release Mortgage Options

In France there are three ways to release equity from your French home:

1. Using a capital repayment French mortgage.  You pay interest and make capital repayments to pay down the French mortgage loan over the term.
2. Using an interest only French mortgage. You pay interest on the French mortgage and repay the loan at term from other sources.
3. Using Viager Sales. You sell your property as a Viager Investment. Then you continue to live in the property rent free. You get cash at the outset plus an annual income until you die. This is not technically a mortgage but it is similar to the equity release products available in other countries.

Depending on your circumstances, the best option may not be immediately obvious so let’s look at the options in detail.

Capital Repayment Option

This is likely to be the cheapest way for you to release equity from your French property.

If you have sufficient ongoing income to make a monthly repayment and service the interest payments on a French equity release mortgage this is likely to be your best option.

A French equity release mortgage requires you to declare the intended use of the funds. A French equity release mortgage will only be granted if the use of the funds is deemed by the bank to be for “an approved purpose”.

French banks are very strict as to their definition of “an approved purpose”, which does not include the use of released funds to support an income deficit.

This type of product is designed for someone with surplus income who may be considering their French tax and inheritance position over the long-term and who would like to release equity from their French property to use for other purposes. Also it allows you to minimize the asset base in France.

Do I Qualify

• The property must be owned outright and not subject to any other mortgage charge.
• The amount you would like to borrow must be within the bank’s LTV (Loan to Value) Ratio, typically below 50%.
• Your income must be sufficient to make the monthly repayments of capital and interest without exceeding the banks standard DTI (Debt to Income) Ratio, which is typically around 33%.
• The Equity Release French Mortgage must be repaid by the bank’s standard age limit, hence typically by age 75, but 80 is possible.
• The funds released must be used for “qualifying purposes”. This is a fairly elastic term, arbitrarily defined by each bank, but specifically excludes the use of the funds released to make the interest and capital repayments on the mortgage itself.
• The equity released cannot be used as a substitute for income.

Interest Only Option

An interest only French equity release mortgage lets you release some equity capital from your French home without making capital repayments every month.

Unusually amongst the range of French Mortgage Products, this product was specifically designed to reduce wealth tax,  reduce French inheritance tax and maximize investment portfolio returns rather than to facilitate the buying of French property.

The terms and conditions are very strict.

Do I Qualify

• Your French property must be owned by you outright with no outstanding French mortgage.
• The French mortgage lender will be concerned to establish that when the mortgage capital falls due for repayment you will be able to make the repayment from a guaranteed source of funds. Such a source may therefore be a forthcoming pension lump sum or a maturing annuity policy.
• The amount of the equity release that you are requesting should be below the bank’s normal interest only LTV (Loan to Value) ratio, in this case usually below 50%.
• Your income must be stable into the future and sufficient to make the mortgage payments within the bank’s normal DTI (Debt to Income) ratio, usually below 33%.
• The equity release mortgage must be repaid by the bank’s normal age limit for lending, hence usually by age 75 but age 80 can be possible.
• The funds released using the French equity release mortgage must be used for “qualifying purposes”. This is a fairly elastic term arbitrarily defined by each bank. It always specifically excludes the use of the funds released to make the interest payments. Bank payments must come from income. The eventual capital repayment of the French interest only equity release mortgage must come from a defined source.
• You will need to prove that your net personal wealth is substantial.