Understanding Financing a French Property Purchase
Financing a French property purchase is somewhat different to the process for financing a UK property purchase. This article explains some of the differences.
As in the UK, purchasers must lodge an application. This will include their personal details and a list of assets. The bank uses this information to assess the borrower’s financial ability to repay a mortgage.
4 Steps to Financing a French Property Purchase
The first step in Financing a French property purchase is to complete a mortgage application. The form covers all the relevant information the bank needs so must be correct. The application can be done directly with a French bank or with the help of a French Mortgage Broker.
The second step will be for the bank to approve the application and make sure that their clients will have the funds available on completion.
The bank will issue an offer which will be covered by the legislation dated 13 July 1979. The law gives the borrower a 10-day cooling off period.
Lastly, the bank will send a copy of the offer to the Notaire. The notaire will prepare the Deed of Mortgage or insert it in the Deed of Purchase.
As far as the release of the funds is concerned it is always the Notaire’s responsibility to request the funds from the bank before completion takes place.
In France, it is also a normal practice for a bank to take a charge over the property to secure the mortgage. The charge will be registered by the French Notaire at the French Land Registry and will last for the duration of the mortgage plus one year.
Types of Charge on French Property
There are on the whole two different kinds of charge on French properties.
- When somebody purchases a property in France, a bank will automatically take a charge called privilege de preteur de deniers. This charge applies up to the purchase price and will guarantee first priority rank to the bank. The main advantage of this guarantee is that it is tax-free.
- The hypotheque is the second main type of charge that banks will take over a property. It generally applies when somebody wishes to carry out some renovation work and needs to borrow the funds on the property. Because the client has already purchased the property, it is no longer possible for the bank to take a privilege de preteur de deniers and the hyptheque will be the only kind of charge available. There is usually stamp duty payable when you take a hypotheque over a property.
A few years ago French law introduced a new concept regarding mortgages with the possibility for a person to top up his mortgage which is similar to the equity release in the UK. French banks still seem reluctant to use this new charge, but it could be a solution for a client who wishes to purchase a property and maybe carry out some renovation work a few years later.
The repayment of the mortgage may not automatically erase the charge on the property at the French Land Registry. To erase the French Land Registry charge the owners will have to appoint a Notaire to prepare a deed called mainlevee to clear the charge. However, a mortgage with a fixed repayment period will be erased automatically at the Land Registry, without any involvement by the client, one year after the term of the mortgage (unless renewed by the bank).