What happens if you default on a french mortgage

They borrowed money from the banks to invest, sometimes unwisely. The French leaseback scheme was tax efficient if the properties in the development were properly managed and the rental stream came in as predicted. But, it was always going to be a long term investment. The current position, resulting from the global recession, is that no sympathy is given to those who cannot honour their agreement to repay the French bank.

If arrears build up for three months i. There is no leniency for British second home owners in France. This 90 day default rule implements a recent EU Directive applicable to all banks in the EU that have advanced a loan and taken a property as security.

It is likely therefore that UK banks which currently allow arrears to accrue for up to six months days are now likely to take action after 90 days to come into line with the rest of the EU. There is an underlying expectation in the UK that banks should show consideration for borrowers who find themselves in difficulty and should treat them gently. The mortgage deed entitles the bank to repossess if the loan is not repaid and the French banks have no qualms about doing just that.

The French banks will not entertain excuses such as that you have lost your job or that profits from your business have turned into losses. I believe they can and will inevitably force a sale if you don't pay anything and if they accept reduced payments in the short term, obviously they won't be prepared to wait forever before any default balance is brought up to date.

No different to the UK mortgage scenario, except that French banks have been "taking no prisoners" long before the UK started! Bear in mind, if they force a sale, they are only looking to recover their outlay, so if you really can't see your financial situation improving, think about selling the property yourself, so that you are in control of how much the property sells for and not the bank, bailiff or notaire! However things proceed for you, do keep the bank "in the loop" - it's in your best interests.

I would suggest getting in touch with them sooner rather than later! You still have negotiating power. I was just reading an article about this topic, maybe it will be helpful to you. The only exceptions to this are if the plan is to convert the property — or it is not apparent that the property is commercial. All is not lost, however: we have good contacts with a number of respected private banks whose expertise in lending against commercial properties means they can help.

Income which can be considered for the purposes of French banks are as follows. It is best if everything is clearly evidenced on a tax return. There is no definitive list, but these will typically include payments for loans, personal loans, car loans, credit cards unless cleared each month , mortgages, alimony, hire purchase, insurance policies , rent. For some odd reason, French banks do not take school fees into consideration for the debt ratio.

So if you have two children at Eton, the not insubstantial term fees will not be assessed in your outgoings! As a broker , we do not carry out any credit checks. One or two French banks may run an Experian check on borrowers once they receive a signed application form, however in most cases there is no credit check in France. With most French banks, things are done by the book — there is little room for discourse as all they want to see are the correct documents that help them to pass the application up through the approval process.

If you already know that private banking is the route you want to go down, please jump forward to our private banking section, later in this guide. This nudges things towards the domain of private banking , and our clients often use this method to access even lower interest rates.

The way the savings are managed varies from bank to bank. We recommend using a financial advisor in your home jurisdiction to help with decisions on how to invest this money. The monthly repayment amount of your French mortgage or any of your existing mortgages is a key consideration for French banks and will influence how they will lend.

The two main factors here are the duration of the mortgage and whether or not the loan is on a repayment basis. The shorter the duration, the higher the cost. The lowest cost will be if you take a mortgage on a part interest-only or full interest-only basis. Interest-only mortgages in France are few and far between and usually require a savings account to be opened with the bank.

Below is a table of the rule of thumb cost per k borrowed that we use when doing a preliminary French mortgage affordability calculation. Of course, these costs fluctuate given the rate environment and also if we have to factor in payments that are included in the mortgage towards a life assurance contract.

However, this is a good rule of thumb table as it generally varies very little and is close enough for estimation purposes. Interest-only options when available tend to be reserved for investment properties. Because of this, banks see a repayment mortgage on the main residence as a way to make sure that the debt will be repaid over time by the customer so long as they keep up with the monthly payments in order to keep the property they live in.

With an interest only mortgage, the capital has to be paid at the end — which represents more risk. Given that the French property market is more of a long-term hold due to a history of stable property price growth since and the availability of year fixed-rate mortgages on a repayment basis, many people opt for a repayment mortgage over an interest-only one.

Of course, there is a market for interest-only mortgages, especially for those expecting a windfall in the near future where the funds to pay off the mortgage will become available. A repayment mortgage has the certainty of being paid off at the end of the term, whereas an interest-only mortgage still has the full balance left to pay at the end of the term.

One important point: interest-only mortgages are notoriously difficult to refinance in France — unless a private banking solution is sought.

If in doubt, experience has taught us to recommend that people take a repayment mortgage. Some banks look at the assets a client holds before deciding to offer a loan, and many of them apply a net asset criteria in order for clients to access certain LTV rates and products.

Net assets are found by taking existing asset values such as property owned, share or bond portfolios and money in non-pension savings accounts and deducting all outstanding loan amounts.

In any case, you need to have enough savings to support the deposit and the fees — and to prove that you have enough savings left after the purchase for the rainy days.

A quick comment here on the attitude of French banks. While it would be wrong to lump them all together, though there are definitely some patterns. Whether we are dealing with a national company or a single small branch banker, they will be extremely fastidious. It is unusual to be able to skip any part of the process or to substitute any of the documents they require for another. By contrast , a broker will have some experience in presenting applications to the lender in ways which perhaps push the envelope a little — but will still be acceptable to them.

Because of this, our recommendation for applications in France and elsewhere is… always use a broker! The maximum age we are aware of permits loans to be completed at the age of 85, though the vast majority must finish at The effect of this can be that, for certain lenders, the duration of the loan may have to be shorter than they would have liked — and the mortgage payments would go up accordingly.

This has further repercussions: in many cases, the maximum amount that the banks will lend you will end up being reduced — because they will still insist that you comply with their previously-mentioned debt-to-income criteria. This will also affect the eventual debt ratio. When considering joint applications, it is the age of the older borrower that will be used when deciding what the maximum duration would be.

The only exception is when the income from the older borrower is not being taken into consideration i. Age is also a consideration when setting the amount which will usually have to be paid for life assurance to cover the loan in France.

More on this very important point later. This is something that all new clients naturally want to know. Knowing the broker fees can help give you an idea of how much to budget when considering the overall costs, and it can equally give you an expectation of what, exactly, your broker is bringing to the party.

Experienced property investors want to know broker fees, too, but for slightly different reasons. This takes into account the value we add in terms of the network of contacts we have created over the years, as well as the costs of maintaining that network. We will usually save our clients money over the course of the loan via accessing lower rates than they would get if pursuing a mortgage themselves, and also help make the experience of getting the mortgage as stress-free as possible. This is a considerable plus for many clients given the difficulties of working across cultures and borders.

In some cases it is the bank that will pay this fee to us, which makes our service free to use for our clients.

In other cases the fees are charged to the client directly. In all cases, a full range of options will be presented to you with all fees and taxes clearly explained so that there are no budgeting surprises. The affordability calculation does not change for equity release or refinance mortgages in France. One point to note is that it is very difficult to release equity from properties in France unless you enter the realms of private banking. So if, for example, a loan with a year initial rate has 10 years left, it is unlikely that the French bank will want to extend the term to much more than This means that when refinancing , the actual monthly cost would not decrease as much as one would expect — simply because the duration cannot be extended by much.

The best course of action in nearly all cases is to get a French mortgage and then hold it until the end of the term, by which time it should be paid off without any complications.

Next up: a step-by-step look at everything you need to go through in order to secure a property and mortgage in France. You now hopefully have a much clearer idea of how French banks will look at your finances when deciding whether to offer you a mortgage — but how do you actually go about making an offer, applying for the loan and sealing the deal? We cover all the next steps right here…. The process of getting a mortgage in France should start with a deep breath, as there will certainly be some practices and customs of the French banks that you will not be prepared for.

Even with decades of experience between the members of the FPF team we are still occasionally stumped by seemingly nonsensical requests from lenders.

We highly recommend beginning the process as early as you possibly can , speaking with a broker and completing an application form so that a plan can be made to optimise all aspects of the mortgage. An awareness of your affordability also means that we can find the right bank for you as quickly as we can.

This is pretty painless — there are just a few forms to fill in and if the bank is happy that the figures all tally, they will usually offer a mortgage in principle. You can expect to get an answer back from the bank in as little as one or two days. While knowing that a bank will lend to you at least in theory is clearly an important first step, it is worth remembering that is just a tiny part of the overall process.

Each of the French banks has slightly different underwriting criteria and so requires a slightly different set of supporting documents. Some banks may also require documents to be certified by a finance or legal professional. The banks will require a full set of documents to process a mortgage application. This is a fairly complex question that may end up being the one that eats up most of your time when researching how to buy.

For some buyers, it is absolutely worth considering at the outset if you will hold the property in your own name or purchase via a company structure. A discussion of relevant tax implications can be found in the French tax section. The documents required to support a French mortgage application are as follows:. This should include salary, dividends and any other income. If the accountant could add a word on the financial stability of the company and its ability to continue to support your income from its activity, that would be helpful.

If Societe Civile Immobiliere. French mortgage products are designed to maximize security to the borrower, because this is what the market wants. Therefore the majority of loans in the French mortgage market will be on a long-term fixed rate or a capped rate. The range of products is not quite so dizzying as it is in the UK, which can be great on the one hand easier to fathom plus some excellent long-term deals and annoying on the other limited choice.

When compared to interest-only mortgages, Repayment mortgages are generally more expensive as you have to pay the interest on the loan amount and also pay off a portion of the capital each month. Of course, with French mortgage rates so low at the moment, the long-term value can be substantial, especially when compared to rates of other European countries.

Hopefully, the property you bought will have appreciated in the meantime so you will have made a profit whilst keeping your costs down. Interest only-mortgages are the mortgage of choice for investors looking to make a return by selling the property for more than the purchase price. Most borrowers and all lenders! It offers low rates for a long time, safe from market risks. Some clients, however, prefer a variable rate so that they can avoid early repayment charges — they also tend to consider the risk of rates suddenly increasing to be low.

Generally, these borrowers are expecting an income boost in the near future that they will use to repay the loan. The majority of loans in France for French property utilise a fixed rate for the term. Fixed rates are available over 10, 15, 20 and even 25 years. The rate is fixed for the entire duration of the mortgage which offers a high level of certainty in terms of the monthly payment. There should be literally no surprises with this kind of mortgage.

The majority of French variable mortgages are capped, meaning there is a maximum rate that the mortgage can reach for a set duration. Due to the current fixed rates, French banks are now offering relatively few variable rate options. Switching to a fixed rate Further protection is offered by French law so that should you take a variable rate mortgage you will always have the option to call your bank and switch to a fixed rate for the rest of the term.

These extra features offer peace of mind to the prospective borrower in France but do vary from bank to bank. It is important to get to the bottom of these features when comparing the various offers on the market. Your broker should be adept at digging into and explaining all the nitty gritty. Many of the mortgage products offered by the French banks offer peace of mind to borrowers but they really do vary from bank to bank.

Prospective buyers should make sure they have a good understanding of what is available as choosing badly can obviously be costly and very hard if not impossible to undo. Once all of the necessary documentation has been received it will be reviewed by an underwriter who will check the affordability and make sure everything is in order.

For a large loan, the application may pass through several more committees before approval. If you are buying the property inside a company structure , you will have to provide the name of the company and , perhaps , the draft statutes at this stage. The loan can be approved with just the drafts — but the mortgage offer will not be printed until the formation of the company has been finalised , as is the bank account for the company, which may well require a trip to France.

So be prepared! Once the rate has been agreed and secured, then the requisite French life insurance can be sorted out — as a general rule, if you want to borrow in France you need life insurance or assurance as it is known in France.

The process involves completing a medical questionnaire and possibly undergoing some tests and waiting for the results. Then the rate of the insurance can be added to the mortgage contract. Age is an important consideration when setting life assurance rates in France.

Unsurprisingly, Younger applicants will obtain cover with lower monthly payments, whilst older applicants will pay more. If you have had any medical problems in the past, or you are borrowing a large amount of money, you may find that the French life assurance company will ask you to undertake medical tests. You may actually be refused life assurance altogether if you have had serious medical problems.

However, it may be possible to arrange a loan without life assurance in some cases or to assign UK life assurance cover — by doing this, though, your choice of French mortgage products will be greatly reduced. Opening a bank account in France is a crucial part of obtaining your French mortgage — because your mortgage payments will normally need to come from a French account.

Opening the account The process for opening a bank account in France is fairly quick and easy — though less so when opening a company account see below. First , you need to fill in and sign the appropriate forms. They will be in French, but we provide English translations of them so that you can see what information they require. In addition to a completed and signed form, there are also a number of other documents required:.

Once these items have been provided, we normally just need 48 hours to open an account. However, most lenders will want you to open a bank account in their own branch and will require a face to face meeting.

Be ready to travel to France for this part! Joint accounts These are common in France, and y ou have the option of the account being held as M. The subtle difference may seem small but it is very important: in the former case, both partners must sign a cheque or withdrawal slip in order for it to be valid — also, in the event of one partner dying, the account is frozen until the will has been settled.

If you wish to have a joint account where either partner can sign and draw on the account, then you should choose the second option. Banking hours French bank opening hours are quite variable, depending on the location, size of branch and so on. In general, they are open from to Mondays to Fridays. Some banks will open on Saturday mornings and late on certain evenings, though this is more likely in larger towns. Lunchtime closing is the norm in smaller towns. The process to open an account for a company is not that straightforward unless the bank providing the loan also opens the account.

If we have to use a different bank then it will most likely require a trip to France. With the French account open plus the direct debit form for your mortgage payments completed and the life assurance in place, the bank will be ready to print the offer and to send it to you via DHL, FedEx or similar. Once you have received the offer you will have to wait 11 days before you can sign and return it. The only exception to this is that some banks will allow you to return the signed form the next day if the mortgage offer is in the name of a company.

This varies from bank to bank, some of which argue that as there is a personal guarantee involved from the clients who are the guarantors of the company , the full 11 days should be waited. During these 11 days you may use the time to either prepare a trip to France to sign and complete the purchase and transfer your personal funds; alternatively you can arrange for a power of attorney to be completed so that the Notaire the French legal representative that must be engaged for all property sales can sign on your behalf.

Arranging a power of attorney is a simple task, though there is, as always, some paperwork. There are services that can get this done for you — let us know if you need an introduction. The minimum time between the bank receiving the offer and transferring the funds to the Notaire so that the purchase can complete is 2 to 3 days. It is not worth planning on less than a week, however, though, just in case there are any delays.

The Notaire will send a breakdown of all the funds which have to be transferred. A mortgage lender is unlikely to want to take back possession of the property, as they will not want to have the burden of managing properties, and there is a real risk of it having great difficulty in being able to recoup the entire loan and any other losses.

If a borrower does start having difficulty in keeping up with payments, then it is important to enter into a discourse with the lender. The sooner that discussion starts, the greater the opportunity to avoid losing the house.

This article is for general information purposes only and does not constitute legal or other professional advice. We would advise you to seek professional advice before acting on this information. Living in France. French property for sale. Published: AM July 30, Updated: PM November 12, Most Read. Don't Miss. Living in France Allo Allo! Brits in France. Karen Tait.