French second home mortgages: your cost-effective solution to buying that unmissable property bargain when your home currency is weak.
In today’s market French second home mortgages can be better than paying cash for your property.
Strange as it may seem, French second home mortgages can reduce the cost of buying your French property.
They can also give you added layers of protection by giving you an independent valuation and added consumer protection.
What’s more, French second home mortgages reduce the risk of owning your French property in uncertain times.
The Advantages of French Second Home Mortgages
Let’s list the advantages of why a mortgage might make financial sense, even if you can afford to pay cash.
Foreign Exchange Hedging
When your home currency is weak but you want to seize a bargain, hedging your currency exposure makes sense.
With a mortgage, you can defer paying off the mortgage until the FX rate moves in your favour.
You can also save money on your FX whether you have a mortgage or not. We explain how to save money on FX on our Foreign Exchange page.
Independent Property Valuation
It can be very difficult to judge the right price to offer for your French property.
In France, your estate agent will normally ask you to sign a compromis de vente (purchase agreement) straight away.
The estate agent will tell you that by signing this legal agreement he or she will immediately take the property off the market. But, as most French properties take a year or so to sell, will a few days matter?
Just pause there to think about the implications – you only have the estate agent’s word that the price is right. You will not have time to survey the property or get an independent valuation.
Instead, if you apply for a mortgage, which you can do without signing a compromis, the lender will independently value the property for free. If the valuation is lower than the price you have agreed to pay, then you can simply renegotiate the price or pull out.
In France asking prices can be anything from 10% to 50% overvalued by eager agents pushing to maximise their 6%+ sales commission.
If you sign the compromis you will immediately have to pay a substantial deposit, typically 10%, to the agent. Your deposit will be forfeit if you exceed the short cooling off period and can’t complete on the purchase. With a French mortgage, you can invoke one of the conditions suspensive if the lender discovers a problem with the property.
Here’s a couple of examples from two of our clients as to how this can help you.
Client A decided to buy a rural property with a field and a large outbuilding. He intended creating a detached gite. When the lender’s valuer visited the property, he wondered about a small electrified fence running across the field. After making enquiries he discovered that the vendor had sold a 9-year agricultural lease to his neighbour after agreeing the sale. Our client was just about to buy land and an outbuilding which he would not be able to take control of for 9 years. Our client used the valuation to negotiate a substantially reduced price.
Client B agreed to buy a very nice looking 5 bedroom apartment. The lender’s valuer priced the property at about 60% of the agreed price. Alarm bells began ringing so we checked further. 3 of the bedrooms did not belong to the vendor. The 3 bedrooms were in common roof space owned by the coproprieté – they also had not received planning permission so were illegally constructed. Our client was very glad to have the option to withdraw from the contract without penalty.
Asset Liability Matching
A good basic rule of finance is to always make sure your assets and liabilities match. This may sound a little theoretical, but it can save you from bankruptcy if the unexpected happens.
When it comes to owing a second home abroad you immediately face an asset liability mismatch. Back at home, the value of your second home translates into your local currency. In reality, the true value of your second home is expressed in a foreign currency. If exchange rates are stable this does not matter but if FX rates move against you, you can be in big trouble.
Preserving Your Capital
In a financially uncertain world, preserving capital liquidity can be of enormous benefit because it can keep your options open.
Financial professionals will do this by leverage. Non-professionals can use an identical strategy by using French second home mortgages to buy their French property.
What’s more, with the extremely low levels of interest rates which can be fixed for the whole mortgage term, leverage is very cheap.
Compared to the advantages, the disadvantages are fairly insignificant and limited to cost and inconvenience.
Taking a French mortgage will add a little to your Notaires fees because the mortgage deed will need to be registered. There are several alternative ways of doing this, depending on the lender, and the cost will be around €1,000-€2,000.
Applying for any mortgage requires a certain amount of form filling and France is no exception.
French lenders love to have a nice thick dossier – sometimes we think they weigh them rather than read them! So, you will need to devote a bit of time to completing the application process.
To prepare yourself for the task we recommend that you watch The Place That Sends You Mad from the film The 12 Tasks of Asterix. It is remarkably true to life and recommended watching if you intend applying without professional help.
Alternatively, you can save yourself time and frustration by using a French mortgage broker such as Best French Mortgage. Go to our How To Choose A French Mortgage Broker page for impartial advice on how compare French mortgage brokers.
Go to our Mortgage Products page to find out more about the range of French mortgage products available.
Read about the cheapest and most popular French mortgage product on our French Repayment Mortgage page.