They aren’t common, but they are available and are often very popular for those looking to rent out their French home, but they aren’t always easy to obtain.
19 May 2021
Welcome to the latest of IPF’s quick guides to French mortgages, here we are going to highlight what you need to know about interest only mortgages in France.
There are two different types of lenders that typically provide interest only French mortgages, French retail lenders and French and international Private Banks.
French retail banks
Interest only mortgages are less commonly available in France than capital and repayment options as the French lenders consider them to be a higher risk option. The criteria to qualify for an interest only mortgage in France is therefore higher than for traditional repayment options.
The good news however is that there are options available.
The maximum loan to value (LTV) for a pure interest only mortgage is currently 75%. If you wish to consider a hybrid product (a product that starts with an interest only period (for either 5 or 7 years) before reverting to a capital and repayment mortgage) the LTV can be increased to 80%, or if you are happy to borrow half on interest only and half on repayment the LTV can also be increased to 80%. The maximum term is 14 years for a pure interest only mortgage, with a minimum loan amount of € 300,000. For the hybrid product the minimum loan amount is €150,000 with a maximum interest only term of 7 years and a maximum total term of 20 years.
To qualify for an interest only French mortgage you will need to be able to show the French lender that:
- You have sufficient assets to repay the capital sum, before you take out the new loan. The French lenders will require you have assets (savings, liquid investments, property equity, although only 50% of the equity in your main residence) equal to 150% of the loan amount.
- That after the French purchase you will have 50% of the value of the new French mortgage & any existing interest only debt in liquid assets
Rates currently start from 2.30% for the hybrid interest only products however you may also need to factor in the cost of life insurance.
Private Banking
Both French and some international Private Banks will provide interest only finance facilities secured against French property. They will however only do this if the borrower develops a Private Banking relationship with the lender and there is the scope for this to grow in the future. Developing a Private Banking relationship will involve the borrower placing financial assets (shares, bonds etc) with the Private bank.
Private banking facilities are typically 5/10 years in length and the interest rates are lower than with the retail lenders – typically around 1.5 - 2.00% at the time of writing. The Private banks do however have a minimum loan amount of around € 1.5 million, but can loan up to 100% of the purchase price (although this will require them taking security over both the property and the funds you invest with them) and they will only offer loans on property in certain locations in France. Typically they would want you to place funds to the value of 50% of the loan amount for them to invest on your behalf (with a minimum of €1.5m) with the potential for this to increase during the term.
19 May 2021
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