Frequently Asked Questions
For your quick reference, we have included the questions people most frequently ask us about our properties. If the question you have is not answered here, please contact us and we will be happy to assist you further. Alternatively, please consult the dedicated FAQs for each country we feature for more information.
Property FAQs - Commonly Asked Questions
Our property FAQS cover the most frequently asked questions asked from why buy a property through Erna Low property through to how does the mortgage process work in France?.
Why buy your property through Erna Low Property?
We are the leading UK agent for French ski properties. We have a wealth of knowledge of the region, up and coming resorts, and the best places to buy. In addition, all our staff are keen skiers so can give you an overview of the slopes as well as advising on investment. Additionally, we offer up to £500 compensation if your site visit results in a sale!
What types of mortgage are available?
French mortgages are generally offered on a repayment (capital and interest) basis with a maximum term of 25 years. Recently however, there has been a shift amongst lenders to offer interest only mortgages to reduce outgoings in the early years which then revert to repayment after the first few years.
Do self-certification mortgages exist in France?
No, under French law, the lender must prove that the borrower can afford the repayments when the loan is taken out and strict methods of calculating affordability are used by French banks.
What is the minimum requirement of proof of income?
If you are employed, you will need to provide your last three month’s payslips and copies of your latest P60 or Employer’s Reference as well as your last six month’s personal bank statements. If you are self-employed then you will require your last three years Audited Accounts and copies of your last twelve month’s business bank statements and your last six month’s of personal bank statements.
What will my loan be based on?
Your loan will be based on your net ‘take home’ pay and is calculated on an affordability basis. All you existing liabilities including any mortgage/rent payments, personal and bank loans, credit cards and any maintenance payments are considered and together with your proposed French mortgage payments must not exceed 33% of your gross monthly income. For example: Gross Monthly Income is £2500, then 33% of this is equivalent to £825, minus existing mortgage repayments of £300 with no other liabilities. This leaves a balance of £525 for a proposed French Mortgage payment.
Will the bank take into consideration any guaranteed rental return I may receive from my property?
No, unfortunately not.
What mortgage fee will be charged?
Typically this will be 1% of the amount borrowed.
What are interest rates based on in France?
Both fixed and variable rate mortgages are common in France. Variable rates are usually based on the EURIBOR (European Inter Bank Offer Rate) plus a loading. Fixed rates are usually more expensive than the variable rates however, they are common in France.
Do I require life insurance?
Although it is not required by law, most banks will insist that you take out some form of life insurance.
What protection do I have as a consumer?
In France, there is a law la loi Scrivener’ which means that the lender has to confirm the offer of finance in writing. This document would contain similar information to that which you would see on a UK mortgage offer such as lender’s details, amount of loan, rate, product etc. This in itself is unusual as most other Continental European countries do not deem it necessary to issue an offer. Under the terms of the loan, the borrower is given a mandatory ten-day cooling off period before they can accept the mortgage offer. The borrower then has thirty days to confirm the offer in which time the conditions can not be altered. Under la loi Scrivener, there is a clause in the reservation contract that the sale can only proceed if the purchaser can secure a suitable mortgage. Therefore, if you are unable to obtain finance, you are not legally bound to complete. However, you would have to prove that you had made every effort to obtain finance and if you can obtain finance you are then bound to fulfil the contract.
Can I remortgage my property?
It is not common practice to remortgage a property in France so it is generally best to consider raising any additional funds that you may require at the time of purchase.
I am buying a leaseback property with a guaranteed rental return, will the bank take this into consideration?
Unfortunately not, the bank will base your eligibility on your current personal circumstances and will not take into consideration any guaranteed rental return. However, they will base your mortgage on the gross price of the property (i.e. inclusive of VAT) whereas you will only pay the net price for the property (i.e. exclusive of VAT). This means that if your mortgage is 80% LTV then the bank will in fact finance approximately 95% of the net price of your property and your deposit will be significantly reduced (approximately 5%).
What happens if I have paid my deposit for my property but I am then refused a French mortgage?
If after all your efforts you are refused a French mortgage, as long as you have done everything within your power to apply for a mortgage within the given time frames, you will still be able to obtain a full refund.
How does the mortgage process work in France?
You can only apply for a mortgage once you have reserved a property (paid a deposit and signed the reservation contract). Once you have provided all the paperwork that the bank require, then the bank will normally take about two weeks to process your application. At this time, the insurance company may also require you to complete further medical forms or examinations. After two weeks the bank will be able to give their decision on the offer and then after a further two weeks the offer will be sent to you.Whilst you are waiting for the offer, it is usual to set up your French bank account which is obligatory. Once you have received your offer, you are required to sign it and return it to the bank within the deadline set by the bank which can vary from two weeks to two months. It is essential that you follow the instructions on how to complete the offer carefully otherwise you may invalidate the offer. When you return your offer to the bank you will also need to include a copy of your RIB (relevé d’identité bancaire) which is the official document that gives your bank details.
Is there an age limit on applying for a French mortgage?
No and pension income can be taken into account as long as paperwork is provided however, life insurance premiums would be significantly increased.
I am buying an ‘off plan’ property, how will my mortgage be affected?
If you are buying an ‘off plan’ property, you will be offered a ‘grace period’ by the bank which is a period of deferred payment where you do not have to repay the loan. This can either be a full grace period where all you have to pay will be your life insurance premiums or a partial grace period where you will pay your life insurance premiums and the applicable interest payments each month. The grace period runs from the moment you sign the title deeds to your property (approximately four months after your initial reservation) until the day the property is delivered. For off plan properties that are paid in stage payments, funds are released by the bank as they are called for by the developer and it is only these funds that will accumulate interest. Once the full loan amount is released and the property is delivered your mortgage repayments will begin.
What supporting documentation do I need to provide the bank with when applying for a mortgage?
You will need to provide the bank with a number of supporting documentation to prove who you are, confirm your financial situation and employment status. Below is a list of documents that you may need to provide the bank with. Please note, this list is not exhaustive and your mortgage advisor will provide you with a complete list. Who You Are: • Two proofs of identification certified at the French Consulate or at bank agency (passport, drivers’ licence) • Two proofs of home address (gas, electricity or phone bill) • Completed loan application • Completed insurance form Your Financial Situation: • Original recommendation letter from your bank • Bank statements from the last three months • Proof of extra income including rental incomes, pensions and dividends • If you have any UK loans or mortgages, monthly statements showing start and finish date, initial amount borrowed, outstanding balances and annual repayments • If you rent your home, a copy of your rental agreement and proof of the rent you pay Employment Status If you are employed: • Your last 3months payslips • Your last 2 P60s If you are self-employed: • Your last 3 tax returns • Accountant’s letter certifying the company name, nature of business activity, turnover for the last three years and the dividends or profits of the company for the last three years
What are the annual local property taxes?
These are determined by the local authorities on a calendar year basis and are compulsory; therefore on sale of the property the notary will automatically take any unpaid local taxes from the net sale proceeds. However with new build developments you are exempt from the payment of ‘taxe foncière’ (equivalent of council tax) for the first two years.
What is an SCI or ‘closed company'?
This term relates to persons wishing to purchase property in France as a joint business venture with friends and family yet who are still residents of the United Kingdom. There is a limit of five ‘families’ able to enter into an SCI. For example an SCI comprising of two brothers or four couples can be classed as a closed company. For straightforward purchases of second homes by a couple, it is however best to buy in your own names rather than that of a company.
Can I still reclaim the VAT by renting a property out myself?
Yes, buyers of freehold properties under five years of age may also reclaim the VAT on their purchase should they choose to rent the property out when they are not using it. In order to do so, it is necessary to claim Résidence de Tourisme status (i.e. to register as a tour operator). This can be achieved by fulfilling at least three out of the following four categories: Provision of a laundry service (before and during the stay). Cleaning before and during the stay. Reception service (i.e. someone who is in resort and contactable during working hours). Breakfast service If registered as a tour operator, a UK based owner could also subcontract these services out to other firms so as to relieve him/herself of the daily running of the business. One may also use a UK based tour operator providing they are registered in France.
Is there a difference between renting a furnished or unfurnished property?
Yes, if furnished then it is classified as a commercial business and therefore will be liable to commercial taxes.
For investors: If I remain a UK resident but intend to build up a portfolio of properties in France for investment purposes, how will I be taxed?
The income on the properties will be taxed in France with deductions for mortgage interest, repairs and other outgoings as in the UK. You should also include this income on your UK tax returns as it is liable for tax in Britain too, credits will however be given for the tax paid in France.
What is the current situation with inheritance tax in France?
Recent changes to the law by President Nicolas Sarkozy mean that as many as 95% of the French population will no longer pay any Inheritance tax at all on the death of their parents, thus benefiting British homeowners in France who previously would have been liable to this tax. Under the new legislation, the threshold for the amount which each child can receive per parent before tax has been raised from 50,000 EUR to 150,000 EUR. For brothers and sisters this amount raises from 5,000 EUR to 15,000 EUR and for nephews and nieces this amount is 7,500 EUR. You are also able to make annual donations to children, grandchildren etc which are free of inheritance tax, as opposed to previously, when donations were restricted to ten year intervals. Up to 30,000 EUR may be given every year tax free so long as the donor is under 65 years of age on the day of transfer and the recipient is over 18. All these changes mean that property investment in France is now as equal a solid investment as it has been previously in Britain and Spain, allowing people peace of mind that their investments will benefit their loved ones more than the tax man.
What about the forced heirship problem in France?
According to French law it is not possible to disinherit your children. Whereas this problem can be avoided or minimised in France by the provision of marriage contracts, unfortunately many British couples do not have such a document to prevent the transition of assets to children rather than a spouse or other party. Unfortunately the changing of a UK based will does not override this law.
What is the solution for British Couples?
It is possible to make a marriage contract in France which will allow you to include a community of property clause. (It is best to do this during the initial purchase as making one later will cost more). On the death of the first party, the community is dissolved and allowing the surviving spouse to receive the deceased’s share automatically. The notary will draw up this contract for you and take you through the formalities (there are however complications if there are children by previous marriages). It is advisable to state on the contract that this rule only applies to your French property so as to avoid any ramifications on assets owned in the UK. Alternatively, one can purchase the property in the name of a British company and bequeath the shares rather than the property, as they would be classed as UK based assets they would be liable to UK as opposed to French inheritance tax rules.
Wealth tax – what is the situation in France?
New reforms in the law by President Nicolas Sarkozy regarding Wealth tax will immediately benefit French and British property owners. Previously, the increase in property values had made many modest home owners liable to wealth tax and often left many residents with no alternative but to sell the property. However, Sarkozy has raised the allowance on the principal residence by 30% to compensate for property price inflation. This only applies to those wishing to live in France on a permanent basis and only takes in to account the equity on the property. It is possible to deduct debts and some business assets which are classed as exempt. If you would like to reduce it further or avoid it altogether you can do this easily in England, however the plans for this must be put into place from the outset of the purchase and before the first tax return is submitted in France.
Retiring to France? – How is the pension taxed?
If your pension comes from employment served in the UK armed services or the UK government, it will be taxed in the UK and remains exempt from French taxes. All other pensions would be taxed under the French Inland Revenue and exempt from UK tax. However the English ‘tax free lump sum’ is liable to tax in France so it may be best to start your pension after you become a French resident enabling you to claim the lump sum whilst still in the UK.
What sort of incentives can you give me?
For ski properties, we can arrange for you to visit the site of your chosen property. Our ski department can book everything for you, from accommodation to flights, down to overnight stops en route, and ski hire and lift passes. For all our properties worldwide, if you end up buying as a result of your trip, we will refund up to £500 towards the cost of your travel!
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