In order to finance your leaseback property, you can mortgage your French leaseback apartment, villa or chalet. Offers differ from broker to broker, but there are some general issues which should be taken into account.
The French mortgage system is quite different from that of the United Kingdom. In order to calculate the maximum amount you can borrow to fund your French leaseback property, the French do not work with income multiples as in the UK . In France they calculate your coverage ratio which looks at the overall borrowing capacity and the ability to repay the debt. The annual repayments and interest can not be more than 33.3% of your annual gross income (sometimes they even take your income after tax). The following is considered as income: your regular salary, a part of your end-of-the-year bonus and your rental income. Mortgage applications are individually reviewed and existing payments on mortgages, credit cards, car loans and other kinds of borrowing are taken into consideration.
The following information and documents will have to be supplied to apply for a French leaseback mortgage:
- Information about your civil status and a copy of your passport.
- Information to establish your income and your ability to repay the leaseback mortgage.
- Employment:
* Employees: a recommendation letter from your employer and salary slips.
* Self-employed: three years of accounts of your company and a letter of a chartered accountant. Self-certification is not accepted.
- Bank:
* A recommendation letter of your bank and bank statements.
Additionally, a life insurance application is obligatory for mortgage applications in France. In case you pass way before the leaseback mortgage term ends, the mortgage will still be repaid.
There are two main types of mortgages:
- Repayment mortgage (‘capital and interest’-mortgage):
The monthly leaseback mortgage payment includes both interest and an amount to pay off the total value of the mortgage. By the end of the mortgage term, you will have completely paid off the mortgage on your leaseback property in France.
- Interest-only mortgage:
Every month your mortgage payment consists only of the interest which you have to pay on the mortgage. However, you will have to take into consideration the amounts you will have to pay into an account to be able to pay back the entire amount at the end of the mortgage term. Depending on the offer, sometimes these are monthly, other times they are more flexible.
Interest rate on mortgages:
- Fixed rate:
For those that would like stability this is perfect option. The monthly payments are fixed on the short or medium term. Some fixed-rate mortgages are fixed for the entire duration of the mortgage term, others can be changed into a variable rate after a while.
- Variable rate:
This rate is slightly cheaper than the fixed rate but the mortgage repayments can go up and down according to the variation of the interest rates.
In the UK this is normally three times your gross income.
A maximum of 80% Loan-to-Value (LTV) mortgage on the price including VAT with a variable rate is available. (This is equal to a 100% LTV mortgage on the price excluding VAT. ). A repayment mortgage with a fixed interest rate is often offered at 60%, 70% or even 80% LTV on the price including VAT. Interest-only mortgages of 80% LTV on the price including VAT are also available. Some brokers also offer mortgages that include the VAT as this is 19.6% of the leaseback’s value and the VAT will only be returned within four to six months after the completion of construction. In France, mortgages with a repayment term of 30 years, instead of the traditional 20, are now also available.
Finally, please bare in mind that in case you are not able to mortgage your leaseback and thus not fund your leaseback, your deposit will be returned to you and the contract will be annulled.
