French mortgages for beginners

Today Guy Watson-Smith, an expert on residential property investments in France, talks about some of the French mortgage options for South Africans.

The standard mortgage:

* The interest rate for a standard mortgage is about 4-5% and adjusts up or down only once a year, on the anniversary of the loan. The rate is fixed to the European Central Bank rate.

* Loans can be taken out over periods up to 20 years, although 15 years or less is usually recommended for people who will turn 70 before the end of the loan period.

* Adjustments in interest rates normally do not affect the monthly repayments; instead the term of the loan is extended or reduced ;

* Life insurance at a rate of about 0,30% is built into the interest rate. Applicants who will be over 70 at the end of their loan will be offered a "senior contract" and insurance is calculated individually.

The ‘‘interest only'' option:

* This is not available from all lending banks in France but suits many borrowers more than the standard mortgage. There there are no death duties on the investment which secures the loan.

* Furthermore, for the same loan, monthly repayments are generally up to 30% less. It may be necessary to "shop around" as one major lender, for example, will no longer accept investments from outside the EU. With the fear of money laundering, the rules change without warning.

* This option has the bank paying for the property in full and the borrower repaying only the monthly interest on that loan. The borrower is required to put an amount on investment with the bank under a life insurance plan, with a guaranteed minimum return calculated to ensure that the borrower's asset at the end of the loan period will cover the loan entirely.

* There is no legal limit to the amount that the borrower can invest (above the amount required to secure the loan), and withdrawals are allowed with only 48 hours of notice.

* Effectively the investment account is an "offshore account" because for non-residents there are no taxes or death duties whatsoever.

How to buy

It is possible to borrow and invest in individual's names, joint names, or as a company set up for the purpose of the investment.

The perfect vehicle for this in France is a tailor made SCI, (Societe Civil Immobilier). This needs a minimum of two shareholders and any division of shares, and has estate planning and capital gains' advantages.

South Africans can apply for a 70% mortgage. Residence is defined in terms of where the applicant earns an income and pays taxes, not by the passport.

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Yawn...(again, read this:) French housing bubble set to burst By Ambrose Evans-Pritchard Last Updated: 1:43am BST 28/03/2007 French property construction plummeted 15.1pc in February and home prices have begun to slip in the first sign that . .more America's housing woes are spreading to Europe. The surprise data came as the US Conference Board's confidence index fell sharply from 111.2 to 107.2, suggesting that housing troubles are starting to unnerve American consumers. The Dow Jones was off 75 points to 12,394 in jumpy trading, while the dollar renewed its downward slide. advertisementFrench house prices have shot up by 210pc since 1995, compared with 190pc in the US, much to the delight of 180,000 Britons with second homes across La Manche. But after years of double-digit gains the pace slowed to 7.2pc last year and turned negative in January with a fall of 0.6pc. "The market has turned in France, and this is the trailer for the movie we're are going to see across Europe this year," said Jean-Paul Six, chief Europe economist for Standard & Poor's. "I think we will see falling house prices in France in coming months and that is going to cause headlines. It is the delayed effect of rising interests rates, which have already gone up seven times to 3.75pc, and are going up further. Spain, Ireland, Scandinavia, Holland and Italy - as well as Britain - have all enjoyed housing booms, with much of Eastern Europe playing catch-up. The big exceptions have been Germany and Switzerland, where property has been flat for a decade. More than 93pc of mortgages in Spain are on floating rates, making the country vulnerable to Europe's monetary squeeze. "I can see a mortgage crisis building. We have a serious property bubble in this country and everyone is in denial; it's worse than the US" said Manuel Romera, director of Madrid's Instituto de la Empresa. Spanish house prices have jumped 270pc in a decade, even though more houses are being built there than in France, Germany, and Italy combined. The central bank has warned repeatedly that the market is overheating, but it is virtually powerless to stop it after Spain joined the euro and gave up control over monetary policy. France looks subdued, by comparison. Almost all mortgages are on fixed rates, and tough lending rules have prevented the emergence of a US-style sub-prime market. French banks usually restrict lending to 75pc of the home's value. The ratio of household debt to disposable income in France is a modest 65pc, compared with 115pc in Spain, 146pc in Britain, 171pc in Holland, and 190pc in Ireland. Even so, Mr Six said France was vulnerable to an emerging glut of houses after record contruction of 420,000 new homes last year. According to France's OFCE research institute, house prises are 25pc overvalued. "If there is a property crash across the Atlantic, there could be contagion to Europe," it said. . .less by Freelance Mycophagist on December 19 2007, 07:21 Find this comment inappropriate? Report it

by This website is going from bad to worse-Absolutely no quality or investigative journalism-utter waste of time on December 19 2007, 09:38 Find this comment inappropriate? Report it

How to gain residence in France? I have travelled to France every year for the past 8 years. Love the place. But to get in requires a Schengen visa with all the associated hassles. And you can only stay for 3 months at a time. The story I would like to read is not how to buy a property . .more but how to get the official acceptance from the French to actually LIVE there! I suspect the author may be travelling on an EU passport and does not have the same problems a South African would have. . .less by Saprrowfart on December 19 2007, 09:25 Find this comment inappropriate? Report it

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