There may be various reasons as to why you may wish to raise finance against the property you are purchasing in France, whether a principal residence, a second home, an investment property or a combination of the above.

Here are a few points to be aware of when buying with a mortgage.

Before viewing property

It is advisable to discuss financing options prior to viewing properties. Firstly, this will give you an idea of your budget and likely expenditure; secondly, providing information to lenders early will speed up the actual mortgage application process.

First contract stage

The grant of the mortgage should be a condition precedent (condition suspensive) of the first contract (compromis or sous-seing privee. If the mortgage is not granted, you can withdraw from the purchase with your deposit returned.

The following points should be noted:

• It is usually a condition that proof that the mortgage application has been made is to be provided within 15 days of the contract and you should ensure that you comply with this. The proof can be provided by means of an attestation from the lender to this effect. If you insert the condition into the contract and then do not make an application, the vendor could oppose the return of the deposit if you do not complete.
• There is usually a deadline for the grant of the mortgage in the first contract. This must be a minimum 30 days from the date of the contract. A realistic deadline is normally two to three months for a non-French resident. What occurs when this deadline is passed will depend in part on what the contract itself states but you should endeavour to respect it.
• The deadline can be extended with the agreement of the other party.
• You will need to provide much detailed information to the lender. For those in employment, banks will typically require your last three payslips, statement of bank accounts going back three months, the last tax return, full personal details of each borrower e.t.c. For those who are self-employed, the process is potentially more complex. This should be borne in mind in the context of what is stated above concerning deadlines.
• A life insurance policy to the benefit of the bank will in almost all cases be required. For people of a certain age or with health problems, enquiries should be made as early as possible to ensure that the obtaining of life insurance will not pose a problem. Certain borrowers will be required to undertake medical tests, ranging from a simple health check by your doctor to electro-cardiograms and blood tests (for those borrowing larger amounts or who have declared a health problem on the obligatory questionnaire de sante. It is often the life insurance that can lead to lengthy delays and it is often overlooked until the final stages. Note that it is possible to obtain life insurance from an insurer other than that proposed by the lender. However, this complicates the matter and you should organise this in advance to prevent delays.

The mortgage offer

You will receive a written mortgage offer once all the formalities have been completed and the bank agrees to lend. Following receipt of the offer, you legally cannot sign for ten clear days. This means that you will need to wait eleven days to accept the offer. The acceptance is to be sent back to the bank by registered post. Again, this should be remembered when organising the completion date. If sufficient time is not allowed, the sale simply cannot complete.

COMPLETION

There will be a deed (acte authentique) for the mortgage, often included in the body of the completion deed (acte de vente). This specifies the terms and conditions of the lending and provides the bank with its security so that it can recover the debt in the event of failure to pay.

The bank liases with the notaire to approve a copy of the deed. Once this is done and, if applicable, the notaire has received your contribution towards the price, draw-down of the mortgage monies will be requested from the lender. Draw-down itself takes at least 24 hours so needs to be factored into the timetable.

If you cannot be present to sign the mortgage deed, a power of attorney can be organised so that the deed can be signed on your behalf. However, this power of attorney should be in authentic form which adds an extra level of complication to the legalisation of the power. For those resident in the UK, this means signature in front of a notary public or solicitor and then the apostille (stamp) inserted by the Foreign and Commonwealth Office or alternatively signature in front of a French consular representative with notaires powers. The power cannot be drafted until details of the mortgage are known from the mortgage offer meaning that it often arrives very late in the day.

The bank will in most cases require all those who are borrowing to be a party to the mortgage either as full borrowers or guarantors (cautions). When the application is made, it is therefore important to include all parties to the actual purchase. This can sometimes be overlooked and later rectification may lead to increased costs and delays (and even a refusal to lend if one of the parties is unsuitable). Banks can lend to SCIs (French property holding company) but the offer will normally need to be in the name of the SCI (the offer can usually only be made once the SCI is duly registered, therefore in the SCI/mortgage scenario, the SCI must come first).

COSTS

The costs of an individual mortgage will need to be ascertained from the lender. However, you should note that in addition to other costs, the registration of the mortgage security attracts an additional fee charged by the notaire. This is typically 1% of the amount borrowed and it is usually not possible to calculate this until the end when the full details of the security required by the lender are known.

If you need further information in relation to finance, please do not hesitate to contact us. We will be pleased to provide you with the contact details of banks and brokers who are able to assist you.

Courtesy: Headdon Consulting

Five steps to buying a property in France

1. Choosing a property and making an offer
2. The compromis de vente or sous seing privé
3. The seven-day cooling off period
4. Intermediate, when the various checks and searches are carried out, mortgages are issued by banks, etc.
5. The acte de vente

Choosing a property and making an offer
Once the buyer has chosen their property and the offer been made and accepted, the agent will contact the notary involved to arrange for the first contract to be drawn up. One or two notaries can be involved. However it is quite common for the same notary to be used.

The Notary
Notaries are public officers in France, appointed by the Minister of Justice. As such they are invested with a delegation of public power. The use of a notary is required to conclude a marriage contract, conduct real estate sales (due to the Land Registry), make a will and find a property transfer after death, etc. The rules of ethics applicable to the notary mean they can act alone to represent two parties in a single act, such as the seller and the buyer of a property. However, either party may request their own notary, without increasing the cost of the operation: in fact, the notarial fee is essentially based on the act, so that if two notaries are involved in the implementation of a sale or a mortgage loan, the fee is the same as if there had been one notary and will simply be divided between them.

Compromis or sous-seing privé
The compromis de vente or sous-seing privé sets out the terms and conditions of the purchase and manages the schedule of the sale. Both parties become tied into the purchase of the property subject to various conditions – “clause suspensive” -that have to be met prior to completion, such as obtaining a mortgage, etc. Once the conditions are met then the sale will occur. If the conditions are not met, both parties become free of the engagement and the deposit is returned to the purchaser, minus a small administrative charge by the notary. If the conditions are met but one party decides not to go ahead, the other party can take legal action to force the other to respect his or her obligations – (clause pénale). If it is the purchaser who does not wish to proceed, generally they will lose the deposit and may be liable to pay additional compensation.

Possible clause suspensives

• nothing in the town planning that would adversely affect value of the property such as a motorway or railway through the land
• no rights of way over the property that have not been revealed to the purchaser
• no mortgage over the property that cannot be paid off from the purchase price
• the need to obtain a mortgage
• the need for outline planning permission for conversion or extension of the property

These conditions should be assiduously worded in order to offer as much protection as possible to both parties.

Seven-day cooling-off period
There is a seven-day cooling-off period at this first contract stage. This starts on the day following signature of the contract if this is carried out in the presence of the notary in France. If you are signing by power of attorney then the seven-day cooling off period starts the day after you sign for the recorded delivery containing the contract. At any point during the seven-day cooling off period you are able to withdraw from the purchase without providing a reason and your deposit must be returned within 21 days of the date of the withdrawal. The vendor does not benefit from a cooling-off period. The deposit can be up to 10% of the purchase price and should be paid direct to the notary.

Surveys/Expertises
In order to do draw up the Compromis or sous-seing privé the notary must first have in his possession the obligatory surveys, all of which are at the charge and responsibility of the seller and for the information of the buyer.

These surveys are: lead; termites; asbestos; thermal efficiency ; electricity & gas – for installations dating back more than 15 years and drainage if the property is not connected to the main system.

General surveys are not common in France. The property is purchased in the condition that it is in on the date of completion. If the buyer requires a survey then this should be carried before the end of the cooling-off period. With the agreement of the vendor, it is possible to include a survey as a condition suspensive but this needs to be worded carefully in order to ensure that the buyer is protected if the results are unsatisfactory. A general clause, subject to survey, would not be sufficient.

Intermediate stage
This follows the seven-day cooling off period. During this time the notary and his staff will carry out the various checks and searches and inform the necessary bodies of the potential sale. During this period mortgages are issued by banks, etc.
The buyers’ responsibility at this stage is to provide the notary with any outstanding paperwork, such as birth and marriage certificates. It is also the buyers’ responsibility to ensure the final balance is deposited in the notary’s account in time for the final acte de vente.

The sellers’ responsibility at this stage is to provide notary with any outstanding paperwork, such as guarantees for any work on the property by registered artisans, as well as any invoices they may have that can be used against their capital gain – where applicable.

Final stage, the Acte de Vente
This is the signing of the Acte Authenique or Acte de Vente. Funds need to be transferred to the notary’s account by the time of the signing and so it is advisable to arrange for this to occur allowing some leeway. The seller should visit the property before signature.
The Acte Authenique is carried out by the notary with all parties present – unless a power of attorney has previously been established. The Acte Authenique contains all of the information present in the compromis de vente as well as mention of all the notarial checks that have been carried out.

If the property is mortgaged then the mortgage will be paid off from the funds by the notary and the balance returned to the seller.
If the seller is purchasing with a mortgage, then this too is administered by the notary and will incur a further fee – calculated by the notary at the time of the compromis de vente.

Declarations will be made to the tax authorities by the notary. Possession generally takes place immediately following the signature of the Authentique. If there is any delay with the sellers moving, then there will be a clause in the Acte Authenique with a specified moving date and a daily penalty clause (clause d’astreinte) in order to ensure this date is adhered to.

Costs and Fees
Agency fees in France vary depending on the value of the property, but are generally around 6% and should be included within the advertised price – frais d’agence compris (FAI)
Notarial fee, these are around 6.5% of the purchase price but are not included in the advertised price. These are in addition to the advertised price.
Mortgage fees, these are calculated on a fixed scale and are around 0.5 – 1% of the mortgage value. The notary will advise you of the approximate figure during the signing of the compromis de vente
VAT or TVA, this is payable by the vendor on any property that is under construction or that is less than 5 years old.