Taking a mortgage versus releasing equity in the UK or paying in cash
There are many reasons why getting a mortgage in France may be the right solution for you. French mortgage interest rates are generally 1-2% below the UK equivalent, so it may be cheaper to borrow the money in France. Also, it is generally accepted that it is safer to have your exchange rate risk based on the monthly mortgage payment of the value of the entire property.
Exchange rate risk
For example, it would be better to pay 20% more for your mortgage payment on a monthly basis, than being forced to sell through a change in circumstances and finding the value of your property is 20% less than the mortgage used to buy it. In addition, as you receive rental income in Euros it makes sense to have a loan that is also paid in Euros which also lessens exchange rate risk. In the current climate where the Euro is historically strong (Jan 11), the prevailing exchange rate may mean a perceived currency exchange loss on purchase. It is worth considering a 100% Euro loan, if available; to reduce the requirement to transfer funds to Euros until the exchange rate moves more in your favour.
Mortgage related fees
French banks will charge up to 1% as a fee to set up the loan though generally the amount will be lower than this. If you choose to use the services of a French specialist broker fees can range from €500 up to 1% of the loan amount depending on the type of loan you choose. The fees are generally success-based and the broker will be able to demonstrate that they have saved you both time and money in securing the most appropriate loan in a timely fashion. You will also have to open a French bank account, which will have an annual fee of approximately €100 per year.
Purchase fees and taxes
By taking a mortgage in France, you will also have to pay mortgage registration tax which varies depending on the loan amount, but as a rule of thumb will be 1.5% for a new build property and perhaps only 0.75% or less for an existing property using a “PPD – Privilège de Prêteur de Deniers”.
‘Notary fees’ comprise the taxes owed to the national government and local government in the form of registrations, and also the fees for the actual conveyancing. Generally new build properties have 4% notary fees and existing properties are 8%. There are differences regionally and many of the fees are on a sliding scale so the overall fees for your property could be lower or higher depending on these variables. It is worth contacting your agent for an estimation.
* Find out more about getting a mortgage in France