Mortgage in France: interest rates in 2024
The mortgage market in France is known as one of the most secure and stable in Europe and the world. The banking system of this country controls the fulfilment of the obligations of creditors and borrowers to each other and prevents property bubbles. Even during the global crises of 2008 and 2014, there were no dramatic increases of interest rates and the number of debtors. The interest rates on mortgage loans for a long time stay one of the lowest in Europe and the world.
However, the global energy crisis of 2022 has strongly affected the French economy in general and the mortgage market in particular. For the first time since 2012, the average annual rate exceeded 3% in April 2023, and at the beginning of June it was already 4.68% for loans with a fixed rate for a period of 20 years, according to The Official Journal of the French Republic. Until March 2022, the average rate was 1.5-2%. Due to the current situation, the revision of the mortgage rate in 2023 is taking place monthly now. According to the French property insurance agency Magnolia.fr, the increase in rates has a negative impact on the purchasing and debt capacity of French income splittings. According to Banque de France, since January 2023, the purchasing power of the French in the property sphere has fallen by 15%. However, despite this, mortgage interest in France still remains at a low level in comparison to the rates of other countries.
Mortgage for property in France when purchasing
In order to secure the mortgage loan system and guarantee 100% repayment to creditors, French banks pay extra attention to checking the complete dossier of a potential borrower. According to French law, a person cannot be evicted from his or her apartment for non-payment if this property is his or her primary residence.
Requirements for foreign borrowers
The requirements of French banks for foreigners who want to get a mortgage for the purchase of property are usually higher than for the French. This is based on the fact that it is quite difficult to check the earnings visibility and financial situation of an investor, since foreign banks do not provide information about their clients to banks of foreign countries. Resident foreigners who have strong ties with the European Union and France in particular, such as a second passport, an official work in a European company, a credit history in French banks or marriage to an EU citizen, have the best chance. One of the main factors is a confirmed high income in Europe and assets as securities, deposits or property.
Even after a positive decision in favour of a foreigner, most likely the conditions for issuing a mortgage will be different in compare to a French citizen:
- Particularly, the size of a mortgage loan for a French citizen can be up to 100%, while for a foreigner it is up to 50% of the value of the property.
- Banks often demand to open a separate account with an amount enough for 6 payments for mortgage in advance.
- For foreigners, it is mandatory to have other property in any country so that the object of the loan is a secondary residence for him or her.
- It is necessary to pass a medical examination for Bank mortgage approval.
The common conditions for French and foreign citizens are:
- The age limit is from 21 to 75 years, which means that at the time of the last year of mortgage payment, the investor should not be over 75 years old.
- The amount of the monthly mortgage payment should not exceed 35% of income per month.
- The maximum mortgage period can be 27 years.
As for the approval of mortgages for Russian citizens in 2023, it will be impossible for non-residents of France to do this, since at the state level French banks do not open accounts without a residence permit. For residents with property in France, it remains possible to apply, but the probability of mortgage approval is low.
Requirements for the purchased property
Before the mortgage is approved, banks need to obtain an independent assessment of the property. The appraiser checks the liquidity of the building, as well as the compliance of all the information stated in the passport of the object. He checks if there are hazardous materials in the construction or decoration or termites in the building. Buying property in a new building has advantages, as banks trust large developers more. When buying on the secondary market, evaluation is a prerequisite for considering the borrower’s dossier.
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Documents required:
- A sample mortgage application form;
- International passport;
- Marriage certificate and prenuptial agreement;
- Preliminary sale and purchase agreement / contract with the developer;
- Certificate of employment showing salary;
- Employment contract / statutory documents;
- Tax returns for the last 2 years;
- Payment receipts for the last 3 months;
- Account statement for the last 3 months;
- Documents confirming passive income;
- Property ownership certificate;
- Schedules of current loans and their payments;
- Heritage information.
All documents must be translated and notarised by a sworn French translator.
The mortgage process
After submitting the dossier and interview, the bank needs about 30 days to approve or reject the application. During this period, the applicant may be called for a second interview to clarify the information. If the bank approves the mortgage, the applicant receives a detailed schedule of payments, penalties for late payment and early repayment of the loan.
An interesting fact is that the investor has 10 days to think about his decision, during which he does not have the right to sign the contract. After this period, once the contract has been signed, the bank transfers the money to the notary, who will adds the details of financing to the deed of sale.
Additional costs when applying for a mortgage
The total cost of expenses when applying for a mortgage is about 3% of the loan amount. The bank’s administrative fees include: the bank’s commission for reviewing the dossier is about 1% of the amount, and the fee for mortgage registration is 0.5%. A professional examination of the object starts from 500 € to 4000 €, depending on the size and location of the property. The investor’s life insurance is 0.3% and is paid every year. The amount may vary depending on the state of health, age and lifestyle.
Mortgage rates in France
The mortgage interest rates in France can be fixed and variable. The choice between these two rates is especially notable for long-term property loans, since under certain conditions it is possible to economise on the amount of payments. However, a free float percentage means certain risks in the unstable economic situation and other influencing factors.
Loan In Fine
A type of mortgage loan, when the borrower pays only mortgage interest to the bank on a monthly basis, and at the end of the period pays the amount of the main property loan. In this case, a separate account is opened for the main amount, where payments can be made without a schedule and a fixed amount. Such a mortgage can be beneficial when buying property for investment, due to the fact that bank interest on the loan can be deducted from the amount of investment profits, reducing the amount of income tax.
Floating Interest Rate Loan
For some borrowers, the choice of a mortgage with a floating interest rate is more interesting, when, for example, interest rates are expected to fall in the mortgage market. In a floating interest rate loan, the contract provides that the interest rate varies depending on fluctuations in the mortgage market. They happen approximately every 3 to 6 months. The investor can reinsure himself by including in the contract an information about the limits of the rate within 1-2%. Most often, when the rate changes, it is not the amount of the monthly payment that changes, but the mortgage period, which is less sensitive for the borrower.
Blended Interest Rate Loan
Hybrid mortgage loan format, which provides for the first few years of payments at a fixed rate, followed by a change to a floating percentage.
Mortgage for investment property in France
Investment property in France is considered a reliable source of passive income, guaranteeing regular dividends. From the point of view of financial value, passive income has more weight for the administrative and financial structures of France than active income. A person who has an investment property gets a reliable reputation in French society. Many French people have several properties for rent. In particular, it is popular to rent an apartment at a reduced cost to your relatives and family members. The French authorities support investment in property for rent by introducing loan and tax benefits. For example, Pinel’s law allows you to deduct up to 21% of the cost during the 12-year lease term.
Is credit history important for mortgage processing?
In the case of French banks, having a positive credit history is one of the main criteria for approving a property mortgage. An important factor is: the length of your credit history: a reliable person will be considered a person with a history longer than 5 years, and an ideal candidate will be a person with a history of more than 10 years. Another factor is the correct deposit of funds on all accounts outstanding. It is recommended to have no more than 2-3 credit accounts. In the absence of a credit history, it is recommended to open and use a credit card for a year or more before applying for a mortgage. A car loan is also a positive factor.
What are the extra costs when applying for a mortgage in France?
Non-recurring mortgage costs in France typically amount to about 2% of loan value. There are also additional insurance payments of about 0.3% per year.
Property appraisal and Due Diligence(not required by all banks) | €800—1,500 |
Borrower's life insurance(depends on the borrower's age,the loan term and amount) | About 0.3% of the loan amount per annum |
Mortgage arrangement fee | 0.5–1% of the loan amount |
Bank commission for credit report processing | Up to 1% of the loan amount |
Early repayment penalty | Up to 3% of the remaining debt |
Do I need to use the brokerage services?
In France, a mortgage broker is most often a mandatory intermediary between an investor and a bank. All mortgage brokers must be members of a special association of brokers and have all licences and documents certifying their professional skills and competence. The specialist has his own database of contacts, which is especially valuable, since personal connections are a characteristic feature of French business. He will correctly assess your potential as a borrower and advise you on how to improve your dossier for obtaining mortgage approval from the bank. In turn, it is more convenient for the bank to work with a person who acts as a guarantor of the client’s reliability. In addition, in France, mortgage broker services are free for the client, as they are paid for by banks.
Tranio’s legal team is ready to find the optimal solution for any sort of non-standard situation. We provide contacts of mortgage brokers in France and support in the process of signing a property contract after mortgage approval.
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