Buying a House or Property in France

The Steps to Buying Property in France

The whole process of buying any type of property or land in France is strictly regulated.

Firstly you should decide how you will buy your property. There are three options:

• Buy for cash - a straight forward option, but once capital has been invested in a French property it can be difficult to release equity although not impossible.
• Re-mortgage your main home to raise the cash - again, a straight forward option and one that doesn't involve you having to deal with any French banks, but you will probably find that the interest rates charged by banks and building societies in other countries may be higher than interest rates in France. Bear in mind the mortgage warning "Your home may be repossessed if you do not keep up repayments on your mortgage". You may be putting your main home at risk for the sake of your holiday home.
• Finance your property with a mortgage from a French bank or mortgage provider.

Initial Costs

Whether you are buying for cash or with a mortgage there are some costs you are going to have to fund yourself.

• The Deposit as your agreement to the purchase - On the day you sign the Compromis de vente (the sales agreement contract) you will be required to pay your deposit, usually 10 percent of the purchase price for older properties (less for new properties under construction or buildings under five years old). It is advisable to pay your deposit cheque to the notaire or agent who is representing you and not to the vendor. The deposit is held by the notaire/agent until completion.
• Notaire fees - For an existing property, be prepared for 8 percent of the purchase price as the cost for the legal fees. For a new build property, assume 4 percent of the purchase price. In addition to the notaire fees, there will be the land/property registration fee which varies from region to region. You can choose your own notaire, or use the same notaire as the vendor - whichever you choose, the cost will be the same. Notaire fees can only be included in the mortgage for French tax payers. If you pay tax in another country, you will have to fund the notaire fees yourself.
• Agency fees - An amount between 5% and 10% can be charged and there is no hard and fast rule on whether it is the vendor or the buyer who pays the agents fees. If you are raising a mortgage you can include these fees in the mortgage if the agency fees are stated in the Compromis de vente.

The Costs of a Mortgage

Mortgage deposit: The minimum amount you need to provide as your deposit for a mortgage depends on your nationality, the country you live in and where you pay income tax.

• For tax payers in France it is possible to arrange a 100 percent mortgage
• For UK and EU residents and tax payers the minimum amount of deposit is 15 percent of the purchase price.
• For residents and tax payers in non EU countries, the minimum amount of deposit is 20 percent of the purchase price.

Arrangement fee: All of the French banks and lenders charge arrangement fees. Most charge 1 percent of the amount of the mortgage, many with a ceiling limit of €1,500, but it is advisable to check because they do differ from each other and some do not have a ceiling limit at all, so you may end up paying 1 percent of the total mortgage.

The essential elements for qualifying for a mortgage

1. Sufficient income to service your mortgage
2. Life assurance to cover the terms of your mortgage
3. Suitability, and valuation of the property

Working out your price range

If you need a mortgage to buy your property, you should establish just what price range you should be looking at and whether you have enough cash funds for the deposit and legal fees and that your income is sufficient to afford the monthly cost of your French mortgage.

You should now be seeking professional advice, about the basic lending criteria and the various options and mortgage products available to you. Again you have a few options:

• Go direct to the French banks and mortgage providers - some have English speaking staff, others do not - which may cause you difficulties. They all have their own lending criteria - how much they will lend you, the term of the mortgage, what mortgage products they offer and how much they will charge for their arrangement fees.
• Use the services of an established mortgage broker, who will advise you about how much you can borrow and the mortgage products which will best suit your circumstances. Your mortgage broker will save you a considerable amount of time and will know which lenders to approach on your behalf, whether it's dependent on the amount of deposit you have available or whether certain conditions should be taken into consideration, and will provide you with quotations from the lenders who are most suitable for you. Throughout the mortgage procedure your mortgage broker will liaise between you and the lender - very useful if your language skills are not that good. Mortgage brokers who are registered in France receive their commission directly from the lender and generally do not charge you a fee - but you should check - it is not always the case.
• The immobilier (estate agent) may offer a mortgage service, but they may only be able to offer products from one particular lender and their command of the English language may be limited.

There are very strict rules which are imposed by the Banque de France on all the French banks and mortgage providers. These rules govern the amount a person can spend each month on a mortgage.

Only one third of your monthly income can be used to service any existing mortgage or rent, other loans, maintenance payments if applicable and credit card repayments (if the outstanding balance is not cleared every month). What is left from your third of monthly income can be used to service a French mortgage and must also include the cost of life assurance.

Income from tax declared earnings, pensions and maintenance payments are classed as standard, but income from investments has to be generated from recognised and acceptable income investment products, or portfolios.

Rental income from long term tenancy agreements can be taken into consideration, but usually only up to 80 percent of the monthly rental income received. Income earned from holiday lettings is not considered as a guaranteed income and is not classed as regular income, except in some cases (such as gîtes and chambre d'hôtes self-catering holiday accommodation and Bed & Breakfast businesses) when there is an historical track record of a holiday letting business.

• For this calculation use gross monthly income - in other words do not deduct income tax
• For people in the French tax system, deduct social charges, but do not deduct tax

Life assurance

It is a requirement that all mortgages in France are covered by life assurance. Many of the French lenders insist that you use their policies and that it covers all the terms of your mortgage. Some lenders have different policies and insist that full disability cover is included as well as life cover. 

Life assurance policies are medically underwritten and with a good medical record the premiums will be at standard rates. If the medical history is not good, then the premiums may be rated higher. There could be further problem if the premium is increased to a level where the cost of the mortgage and the life cover exceed the third of income ruling.

Finding a Property

Much information is readily available from magazines and Internet websites advertising properties for sale in France; it is very easy to get an idea of what type of property is available and at what cost before you actually start your search.

There are many ways to search for properties: estate agents, property magazines and ''home hunters". In more popular or urban areas you will probably find estate agents who offer an English speaking service.

Think carefully about the location and type of the property depending on whether you plan for it to be your main residence, second home, holiday home to be let out on occasion or a property to be let as an investment for the future.

Make a list of the important elements - the purchase price, the overall size and number of rooms, is a cave (cellar) or garage essential, would you prefer a garden, terrace or balcony, etc - it will keep you and your estate agent or "home hunter" on the right track to find your ideal property.

The type of property and its condition is also an important consideration. There are certain types of properties that will not be acceptable for mortgage finance and the property should be classed as "habitable" meaning structurally sound and having the basic utilities of electricity, mains water and sewerage system, all conforming to the current regulations. It will be very difficult, if not impossible, to raise mortgage finance on buildings constructed of wood, stone cabanons, derelict barns and properties with agricultural land. Some lenders will not accept properties that have been registered for commercial use such as gîtes and chambres d'hôtes.  

Buying to renovate or build a new property demands careful pre-planning. Certain French building regulations are very different from other countries and permission has to be granted from the local mairie (Town Hall). Detailed applications must be completed for the Certificat d'urbanisme (certificate of town planning/urban development) and other documents, which state what developments are allowable on the property and its land.

You will need the advice of an expert - an architect or surveyor. If you are relying on mortgage finance for renovation works, then the works will have to be completed by tradesmen who are registered in France. Registered tradesmen have the correct insurances covering their work - it is the essential guarantee for the bank or lender.

Purchasing a Property

Once you have found a property that is suitable and your offer has been accepted by the vendor, you will be required to sign a sales contract, the Compromis de vente (sometimes called the Promesse de vente).

The Compromis de vente

The notaire or agent can draft the Compromis de vente, which will be written in French, but may have an English translation. Whoever is named as the purchaser(s) and you are intending to use mortgage funds, the same name(s) must appear on your mortgage application. The Compromis is a legal contract, you should read it carefully and consult your notaire before signing it to check that all the details and conditions are correct, such as:

• Details and identities of the vendor and yourself (the purchaser)
• A full description of the property
• The surface area of the property and land
• The purchase price, the breakdown of fees and who will pay each fee
• Details of the notaire and sales agent
• Details of any fixtures and fittings included in the sale
• Results of reports on asbestos, lead and termites
• Details of your mortgage, the date of when you should have your mortgage offer and the date of completion
• Any let out clauses (conditions/clauses suspensives) and the penalties that will be incurred by you or the vendor if completion doesn't take place

The let out clauses

For you, the purchaser, the clause suspensives protect the deposit you gave to the notaire or agent as part of your agreement to purchase the property.

• The most usual is a clause stating that your agreement to purchase is subject to you obtaining mortgage finance.
• Other clauses can be inserted, such as the vendor having to carry out necessary repairs or subject to the dimensions of the property corresponding to what is detailed in the Compromis, and this is where expert legal advice is useful in the negotiation of these clauses.

On the day of signing the Compromis de vente you will be required to pay your deposit to the notaire or the agent.

Once you have signed the Compromis de vente, the clock starts ticking. You have got a set date by when you should complete on the purchase. You are given a 7 day cooling off period (7 days in which to change your mind) this is the best time to instruct for a structural survey or inspection.

Even though you may have a clause suspensive in the Compromis stating your agreement to buy is subject to mortgage finance, if you do not make reasonable efforts to obtain mortgage finance in time, then you could lose your deposit.

The mortgage procedure

Under French law, all mortgages are "full status" and a lot of documentation is required to support your mortgage application.

Lenders are obliged to ensure that any person applying for a mortgage is financially able to meet the mortgage repayments.

Apart from a completed mortgage application form, life assurance form and a copy of the Compromis that has been signed by both you and the vendor, you will need to provide photocopies of:

• Identity - birth certificate, passport, marriage certificate and divorce certificate if applicable
• If you are employed or receiving a pension - 3 months payslips, P60's or tax returns, proof of any other income
• If you are self-employed or director of your own company - 2 years trading accounts and tax returns
• Banks statements (3 months) showing receipt of income and payment of loans. Statement proving your fund for the deposit to your mortgage
• Statements (1month) relating to existing mortgage(s), loans and credit cards and maintenance agreement if applicable
• If you live in rented accommodation you will be required to show your rental agreement
• For pure interest only mortgages - a statement of assets

If you are buying a "new build" or wanting to include the costs of works /renovation in your mortgage you will need to provide further documents: 

• For renovation or improvement works - professional estimates or invoices from tradesmen registered in France together with a copy of their insurance certificate
• For property to be built - the property title or preliminary sales agreement for the land, building licence, the building contract and plans
• For re-finance or equity release - the title deed or loan deed with the complete repayment table

Life assurance is mandatory to cover all the terms of your mortgage. Most of the banks and lenders insist on their own in house policies are used and the medical underwriters may ask you to have a medical examination or tests.

When your file has been thoroughly checked and approved by an underwriter, the lender will request a valuation of the property.
The valuation is not a survey. It is merely a valuation agreeing that what your are paying for the property and the amount the lender is prepared to lend is acceptable.

Should you be declined mortgage funds, either because of financial information, medical underwriting or the unsuitability of the property, the lender will advise you and issue you with a letter which you can use as your proof to have your deposit refunded to you as agreed in the Compromis let out clause.

Subject to everything about your mortgage application being acceptable, a mortgage offer (offer preable du credit) will be issued to you.

The rules about signing and dating your mortgage offer are very strict. There is a 10 day cooling off period. This is a legal requirement and allows you sufficient time to consider the terms of your mortgage before returning the documents to the lender by post.

Some lenders will want their arrangement fee paid on acceptance of their mortgage offer and your life assurance policy will by put on risk from the date you signed the mortgage offer.

You must sign and date the offer letter after waiting 10 days but before 30 days have elapsed. If you get the date wrong, a new offer letter will have to be issued with another waiting period of 10 days.

When the lender sends you the mortgage offer they also inform your notaire of the details of the mortgage. Completion date should be concluded within 4 months of receipt of your acceptance to the mortgage offer.

Completion day

You can now arrange a time and date for completion to take place. It is your responsibility to instruct the notaire to request the mortgage funds from the lender.

Once you know the date you will be completing on your property purchase you will need to make sure that your French bank account is open and funds are being transferred into it in time for the completion date and arrange for buildings insurance to be on risk from the date of completion. You will need to provide details of the insurance policy.

You will be sent a draft of the acte de vente (projet de l'acte) (final deed of sale) a few weeks before the completion date. It will contain much of the same information as in the original Compromis, but check it through carefully. It will also state the date that you may move into the property. You will be asked to produce your birth certificate and passport together with marriage certificate and divorce decree if applicable.

If you think you may be unable to attend the meeting to sign the acte de vente (final deed of sale) you can give a trusted person or friend a power of attorney (a mandat) which authorises them to act on your behalf if you unable to attend the actual signing.

The acte de vente is signed by you (the buyer), the vendor and one notaire. If both you and the vendor have different notaires, only one needs to witness the acte de vente.

Once the acte de vente has been signed and witnessed, the notaire has to pay all the taxes, settle all the accounts of the purchase/sale and register the deeds and mortgage. A few months later you will receive a certificate informing you that the title has been registered. The original title deed is kept by the notary, although they may make authorised copies

Mortgage Products and their Uses

In France, mortgages have in the main been used to purchase property or to fund improvement works. The range of mortgage products was very limited and re-mortgaging or re-financing was virtually impossible. There have been a few changes, but during 2006 and 2007 the changes have been more significant in the way some of the banks and lenders are able to offer solutions, especially to equity release mortgage.

A mortgage can be used to:

• Purchase a property which may or may not need renovation or improvement works
• Purchase a new property or one under construction
• Bridging finance - only available when selling a property in France to buy another French property and only if supported by a new mortgage
• Re-finance an existing mortgage on your French property and would like to reduce your monthly payments and/or benefit from lower interest rates
• Replace a loan in another currency that you used to purchase your French property and now would like to pay it back and take out a new loan in euros
• Release equity from your French property

Choosing the right type of mortgage which is suitable for you and your circumstances is essential.

Capital & interest repayment mortgage (variable rate)

Probably the most flexible of mortgage products. You know what your repayments will be. The interest rate applicable to your loan is revised on a regular basis. Should interest rates fluctuate, your repayments stay the same - only the term of your loan is effected. A rise in the interest rate will increase the term of your mortgage. A fall in the rate of interest will reduce the duration of the loan. There is a maximum of 5 additional years that can be applied to your mortgage. You are able to make lump sum payments or redeem your mortgage early without incurring any financial charges or penalties and you can change to a fixed rate at any time. However, if you do convert to a fixed rate you will have to pay a charge in the event of early redemption.

Capital & interest repayment mortgage (fixed rate)

The repayments are fixed for the whole term of the mortgage. You know exactly what you will be paying each month and how many payments you will have to make. Fixed rates are usually higher than variable rates. Financial penalties can be charged for redeeming your mortgage early, or even changing to a variable interest rate. Each bank and lender will differ and it is advisable to check exactly what their financial penalties are.

Interest only

The majority of interest only mortgages that are offered by the French banks are quite different and work differently than what you might expect and there are two products. With both products, the term of the mortgage is divided into two phases.

• During the first phase you pay only the interest on the mortgage.
• During the second phase you pay both the capital and the interest.

Because you are repaying the capital over a shorter period, during the second phase your monthly repayments will suddenly be much higher.

Or the alternative product, your deposit is used as collateral which is estimated to grow at a set rate. Again the term of the mortgage is divided into two phases.

During the first phase you pay only the interest on the mortgage. At the end of the first phase your collateral is valued and is deducted from the amount you originally borrowed.
During the second phase you pay the capital and interest on the outstanding mortgage. Once again, you will probably find that your monthly repayments will be higher.

A pure interest only mortgage is possible, but not readily available to anyone as the lending criteria is very strict and the minimum lend is €100,000. (For further information contact the author of this article).

Equity Release Mortgage

Once virtually impossible, but with the increase in the number of international buyers, some banks have responded to the needs and requirements to those people who want to release some of the equity in their property. During 2005 and 2006, Equity Release was introduced, but the lending criteria was so strict that many people were excluded many from benefiting (for example, self-employed people and SCI - Societe Civile Immobiliere).

Although many banks are choosing not to offer equity release, there is a growing number that are, and it is possible to release between 50 percent and 70 percent of the value of the property. The lending criteria are still strict, but now equity release is available to self-employed people and SCIs (subject to their terms and conditions).

The equity release mortgage is usually on a fixed interest rate, and is higher than the standard capital and interest fixed rate. There are financial penalties attached with this mortgage.

Pre-Sale Efficiency Report

Before a house may be sold, it is obligatory (since 1 November 2006) to have an energy diagnosis (diagnostic de performance énergétique). 

The diagnoses - to be carried out by a professional - are in order to identify the estimated consumption of energy of a building on two criteria:

• the consumption of energy: usage of electricity in running the house measured by kWh/m2 of primary energy
• the impact of this consumption: greenhouse gas emissions measured in Kg of CO2/m2 

The efficiency report assesses energy usage and and natural risks along with noting the presence of asbestos and lead. It includes technical recommendations for improving consumption. There is a fee payable.

Note: these estimates will not constitute a contractual guarantee, but will allow an objective comparison of the quality of buildings put on sale. Real consumption of a building will depend directly on the electrical and heating usage by residents.

• Further information from Logement.gouv (in French)
• The law from Legifrance (in French)

The diagnosis is also required on rental properties and new builds.

The Professionals Involved with Property Purchase

As soon as you start thinking about buying a property in France you are going to need professionals who will help and advise you.

The estate agent and property searcher

Estate agents (agents immobiliers) are usually local to an area and therefore will only have properties for sale within that area. The agent earns commission from the sale of the property and will try to obtain the best possible price for the property, but will know what price the vendor will accept. They should also be able to give you an estimation of all the other fees and the property charges you will be responsible for when you are the owner.

The more significant trade associations representing the Estate Agents in France are:

• FNAIM (Fédération Nationale des Agents Immobiliers)
• UNIT (Union Nationale de l'Immobilier)
• SNPI (Syndicat National des Professionnels Immobiliers)
• CNAB (Confédération Nationale des Administrateurs de Biens)

Property searchers, as their title implies, will search for a property for that is within a price bracket and matches requirements. Many offer a personal service, taking you to view the properties they have short-listed for you. Some will charge a fee, while others will take a percentage commission from the immobiler instead.

Estate agents, property searchers and property managing agents should be properly registered and carry an appropriate "professional card" (Carte Professionnelle). Issued by the Préfecture, it is their licence to carry out the property sale (carte professionnelle de transaction sur immeubles et fonds de commerce), property search (marchand de listes) or property management activity (gestion immobilière).

The Notaire

The notaire is a public official and given the title of Maitre. The notaire is highly qualified in the French legal system and is able to advise about property, family and succession, and corporate laws. The state confers powers on the notaire to legalise property purchase transactions which cannot be enforced by any other means. The notaire is deemed to be a public official and provides security to the contracts he supervises and is liable for his professional acts. A notaire is responsible for the conveyance, preparing the various documents and confirming the seller's title to the property, checking that there are no other mortgages on the property, etc. The notaire also has indemnity assurance, which provides a financial guarantee to the client.

The purchaser is free to choose their own notaire, but may use the same notaire as the vendor. Using two notaires may cause delays to the property purchase, and may also slightly increase the cost of legal fees (you are advised to check with your notaire).

• For a list of notaires throughout France and a search facility for those who speak English see notaires.fr

Mortgage Brokers

A mortgage broker will have agencies with various French banks and mortgage providers, will understand how they react to certain cases and circumstances, and will act as your intermediary with the lender. Newly introduced legislation in 2005 has meant that mortgage brokers, or mortgage advisers, must have their own professional indemnity insurance and be registered with each bank and mortgage provider they represent.

With all the banks and lenders having different lending criteria and products, your mortgage broker should save you a considerable amount of time in finding a lender that is suitable to your personal requirements, be able to advise on the various different mortgage products, supply you with quotations direct from the lenders, their mortgage applications and life assurance forms together with guidance for which documents you will need to provide to support your mortgage application. A good broker will liaise directly with the lender, foresee and prevent some of the problems that can occur and guide you through the French mortgage procedure.

Mortgage brokers receive their commission direct from the bank or lender they introduce business to. Most of those who are registered in France will not charge you fees for their services, but you are advised to check for yourself.

Architects and surveyors

An architect or surveyor should be considered if you are thinking of purchasing and older property or one that you want to renovate. They will have experience with planning and obtaining necessary permissions and certificates, and be able to give an estimation of the cost. They should also know of reputable builders who are registered as such and who have their own insurances to cover their work which is essential if you are using mortgage funds for renovation or improvement works.

Property Taxes and Related Topics

There are two taxes on all residential property. These are collected by the State for the local authorities. These taxes are assessed at individual rates according to location and can vary substantially. It is advisable to ask your estate agent for these details when you are looking at properties to buy.

Taxe fonciére (land tax)

As the owner of a property on the first day of January, you are liable for paying this tax which is due for payment by October/November. Penalties or fines are added for late payment. It is possible to arrange a monthly payment scheme at the outset.

Taxe d'habitation (local taxes)

Only due on a habitable building. The occupant of the property on the first day of January is liable for paying this tax. Even if you only use the property on occasional visits, if it is furnished and supplied with water and electricity you are liable for this tax. The amount of this tax will vary from one place to another and according to the size of the property. (If you rent your property to someone else and they are living there on the first day of January for the year, they are liable for paying this tax.)

Charges de Co-Propriétaires (maintenance charges)

For those owning property such as an apartment within a complex there are maintenance and service charges to pay. You should consider these charges before signing the Compromis. The charges will vary according to the size and quality of the complex, whether there are lifts, swimming pool, gardens, tennis courts and other facilities.

French Succession Laws - the Law of Inheritance

French succession law applies to properties in France, even if the owners are not French nationals. Under French succession law a person may not leave their assets to anyone they please. Protected heirs come first, while the spouse or partner is treated very differently. With effect from 1 January 2007, only children are considered as protected heirs (previously this included parents).

Advice should be taken your the notaire, and act on it before signing the acte de vente. It is difficult to make changes once the acte de vente had been registered and can cause serious consequences. Even for straightforward family circumstances advise should be sought, but if your situation is more complicated, because of being married more than once or having children and step-children, it is essential.

• See AgloINFO INFOrmation Page Inheritance Law in France

SCI - Société Civile Immobilière

An SCI is a property company. Although it can be used to minimise succession tax by gifting shares to your children during your lifetime, they are usually used by a group of unrelated people to purchase a property as co-owners. An SCI is meant to be non-trading, therefore it is not the right solution if you are planning to run gîtes or chambres d'hôtes. From a UK tax perspective, a director of an SCI, and having free use of a property in France for holidays, then you can become liable for income tax on the assessed benefits in kind. Taking professional advice is essential.

• See also: INFOrmation on the Societe Civil Immobiliere

Capital gains tax

Capital gains tax only applies if you are selling a secondary residence. There is no capital gains tax incurred if you sell your main home to buy another. Calculating any tax due on the re-sale of a property is complicated and professional advice should be sought. The tax is applied to the difference between the sale price and that of the original purchase price plus the transaction costs. In other words - the gain.

• See also: INFOrmation on French Taxes

Wealth tax

Individuals resident in France on 1st January and non-residents who have assets in France are taxed on the basis of their assets as at 1st January each year. Wealth tax only effects those with assets over a certain rate and is calculated in bands above that figure.

• To find out the current rate see this page of the French tax website impots gouv: Click here (in French)

Further information

• AngloINFO INFOrmation Page: The Property Purchase Transaction in France provides a clear guideline to the process of buying a property in France - the legal and contractual steps - and a highlight of points that you should bear in mind. 
• AngloINFO INFOrmation Page: Capital Gains on Real Estate explains capital gains on property in France
• AngloINFO INFOrmation Page: French Property Taxes explains the annual property taxes you will be charged as a home owner in France.
• AngloINFO INFOrmation Page: Selling Property in France gives a general overview of the process and points to bear in mind when selling a house, apartment or land in France.
• AngloINFO INFOrmation Page: Syndics and Co-Propriétaires Explanation on the rights and responsibilities of the owner of an apartment.
• AngloINFO INFOrmation Page: Societe Civil Immobiliere

---

Article by Carole Bayliss of mortgagefrance.com
Updated 2007
 Tel: +33 (0)5 62 09 38 41 / e-mail / www.mortgagefrance.com
Copyright © 2001-2007 Carole & Tony Bayliss All Rights Reserved