Overview: Buying a property in France

Posted by admin in Property Investment, The South of France | September 13th 2005

In France, the process of buying a house, an apartment or land is regulated.
Before you begin looking for the property you want to own, establish whether you have enough capital for the deposit, are able to raise the finance, pay the arrangement, transaction and legal fees and afford the monthly payment which should include the mortgage payments, life assurance and building insurance

Property Searching in France

There are many ways to search for properties: estate agents windows, property magazines, the internet and through “home hunters”. In more popular or urban areas you will probably find estate agents who offer an English speaking service. Many estate agents in France are local to their own area and will only hold information on property they have on their books.

Searching by Internet will give you an idea of the prices of property in the region of your choice. Find out what you can afford to buy before you embark on the property search.

Think carefully about the position of your property depending on whether you plan for it to be a primary residence, second home, holiday home to be let out on occasion, or a property to let as an investment for the future?

• Note: Buying to renovate or build demands careful pre-planning: Certain French building regulations are very different from other countries and permission has to be sought from the mairie. Detailed applications must be filled for the certificat d’urbanisme (and other documents) which state what developments may be undertaken on a given property. You will need the advice of an expert. If you are relying on mortgage finance, then the renovation works will have to be completed by tradesmen registered in France.

Preparing the Property Purchase

Sale/Purchase Agreements: Once a property is found and the price has been agreed with the estate agent or the vendor, the vendor and purchaser, will be required to sign a sales contract, the Compromis de vente (sometimes called Promesse de vente).

It is advisable to consult your notaire before signing it and check that all the details and content are correct:
• Details of the identities of the vendor and you (the purchaser).
• A full description of the property
• The surface area of the property and land
• The purchase price and the break down of fees
• The date when completion must take place (providing the notary has received all the necessary answer from the different bodies)
• Any let-out clauses (conditions / clauses suspensives) and the penalties that will be imposed if completion does not take place.

This document is binding on both the vendor and the purchaser. It includes a 7-day cooling-off period (7 days in which to change your mind) this is the best time to instruct for a structural survey inspection. You can include let-out clauses (conditions / clauses suspensives).

If a mortgage is to be sought, the Compromis de Vente must contain a clause confirming that the mortgage finance is being sought. If the mortgage application is declined, the purchaser will not lose the deposit. Similarly, if the sale is dependent on getting certain property development certificated this should be included.

On the day of signing the Compromis de Vente you will be required to pay your deposit, usually 10% of the purchase price for older properties (less for new properties under construction or buildings under five years old). It is advisable to pay your deposit cheque to the compte sequester (the notaire or agent who is representing you) and not to the vendor. The deposit is held by the notaire/agent until completion.
Note: It is quite normal for the notaire to act for both the vendor and the purchaser. It is advisable, however, that purchasers, in order to protect their own interests, appoint their own notaire.

After the 7-day cooling off period ends your deposit is only refundable if any of the let-out clauses are fulfilled. Similarly if the vendor withdraws from the sale, the Compromis will state what penalty the vendor has to pay to you.

On the day of completion, the balance of the purchase price of the property and all fees will be made to the notaire. Both vendor and purchaser will sign the Acte de Vente (see below).

Applying for a French Mortgage

Under French law, all mortgages are “full status”, meaning that full proof of identity, income, bank statements, loans payments etc. are necessary for a successful mortgage application. Lenders are obliged to ensure that any person applying for a mortgage is financially able to meet the repayments and proof of income and expenditure will be required.

When your file has been checked and approved the lender will request a valuation of the property. (This is not a survey, merely a valuation agreeing that what you are paying for the property is a fair price).
Should you be declined mortgage funds the lender will advise you and you will receive your deposit back, or the amount agreed in the Compromis let-out clause.

Subject to the property valuation, the mortgage offer (offre preable du credit) will be issued and sent to you. There is a 10-day cooling off period. You must wait 10 days before signing and dating the offer, but no more than 30 days. This is a legal requirement and allows you sufficient time to fully consider the terms of your mortgage before returning the documents to the lender by post. Sometimes the lender will want their arrangement fee paid on acceptance of their mortgage offer. The purchase of the property must be concluded within 4 months of receipt of your acceptance to the mortgage.

When the lender sends you the mortgage offer, they also inform the notaire of the details of your mortgage. The notaire has certain duties to perform regarding the property, such as checking for previous mortgages on the property, right of pre-emption, etc.. He will also draw up the deed of sale (Acte authentique de vente) and request the mortgage money from the lender, ready for the day of completion.

A deposit of 20% of the purchase price is generally required (but may be lower depending on the status of the purchaser), plus the cost of legal fees which usually amounts to between 3% and 13% of the purchase price. Generally, the fees will be between 7% and 8% of the purchase price.

There are different types of mortgages available: variable, capped and fixed rate are the standard options. The maximum term of a mortgage is usually 20 years, but will depend on the age of the borrower. Longer terms may be available to French residents declaring their tax liabilities in France.
The mortgage is secured on the property and the mortgage funds, when requested by the notaire, will be released by the lender for the completion.

• Note: Mortgages are available for the purchase of property and can include the costs of any works or renovations. Written estimates have to provided and these will only be accepted from tradesmen registered in France. It is possible to recoup monies that have been spent on renovating property, but invoices from tradesmen registered in France have to be provided.

Mortgage Rate Guidelines

The amount that can be borrowed is based on the purchaser’s ability to service the loan. The general guideline is that, of a net monthly income (which, in France, means after social charges have been deducted but not taxes), 33% should cover existing expenditure and the monthly repayment of the mortgage. Outgoings taken into consideration are liabilities such as other mortgage or rent, personal loans and maintenance commitments.

If the applicant is employed, the lender will base income on evidence of pay slips and the amount that is credited to the bank account, monthly. If self-employed, income is assessed as the average of the past three years net income. additional income such as that from investments or rentals will also be considered.
• Note: By varying the term of your mortgage (between 7 and 20 years) you should be able to alter the amount of your monthly payments to suit your disposable income.
• Note: The Life Assurance premiums are included in the calculation for maximum allowable monthly payments.

Mortgage Types

• Fixed Rate Mortgage: The mortgage is fixed for the whole term, so you will know exactly how much you will have to pay and how many payments you will make. There is usually an early redemption charge payable on fixed rate mortgages. Also if you choose this option you may not be able to convert it to a variable rate mortgage at a later date. Again this may vary from lender to lender.
• Variable Rate Mortgage: The mortgage is linked to the variations in the central bank lending rate. However the monthly payments usually remain the same when the rates change and the mortgage term will vary according to the rates movement. Usually there is no redemption charge for early repayment and you may be able to convert it to a fixed rate mortgage at any time, but again this is dependent on the lender.
Life Assurance and Buildings & Contents Insurance

It is a requirement that all mortgages in France are covered by life assurance. (Many of the French lenders insist that you use their policies.) You will be required to take out policies for the duration of the loan with a company approved by the lender. A quotation should be submitted with the mortgage application. After agreement for the loan and underwriting, your life policy should be ready to go on risk from the date you signed the mortgage offer. Building insurance need to be in place on completion of the purchase.
• Note: Life assurance premiums are included in the 30% to 33% of disposable income available for mortgage costs.

Completion Day

The day of signing: you, the vendor (and a translator if you need one) sign the Acte authentique de vente at the notaire’s office.

The notaire has the money from the buyer or lender.

You have:

• The balance of your deposit for the mortgage
• Your fee payable to the notaire and the land registry fees if they are not included in the notaires fees.
Once the account is settled, the vendor has sold the property to you. You are now the owner.
Fees and other charges
Transaction Charges: these fees are charged by the estate agent or notaire and usually represent between 5% and 10% of the purchase price and are paid by the vendor. Sometimes these fees are included in the purchase price.

Notaire Fees equate to approximately 8% of the purchase price of property over 5 years old. For property less than 5 years old the charges will be between 2% and 4% of the purchase price. VAT may be payable for properties under 5 years of age, where there has been no previous sale.

The notaire fees can only be included included in the mortgage for French tax payers. Notaire costs and the stamp duty are fixed by law and include disbursements, taxes, various duties as well as searches at the land and mortgage registry. Land registration fees vary according to different areas and regions. If the property is being sold by the notaire, the notaire may charge a sales commission fee.

Estate Agency Fees can be paid by either the vendor or the buyer. It is advisable to check.
Lenders’ Arrangement Fees vary according to each lender. It is advisable to ask at the start of your mortgage negotiations what the charges will be. As a rough guide assume 1% of the loan, although there may be minimum and maximum levels.

The Experts Involved

The Notaire

The notaire is a public official and given the title of Maitre. The notaire is highly qualified in the French legal system – it takes seven years to qualify. A notaire is able to advise in specific areas of law, such as property law, family and corporate law. The State confers on the notaire powers to legalise property purchase agreements which cannot be enforced by any other means. The notaire is deemed to be a Public Official and provides security to the contracts he supervises and is liable for his professional acts. A notaire is responsible for the conveyance, preparing the various documents, confirming the seller’s title to the property, checking that there are no other mortgages on the property, etc.. The notaire also has indemnity assurance, which provides a financial guarantee to the client.

The purchaser is free to choose their own notaire, but can use the same notaire as the vendor. As notaire fees are fixed, using two notaires will not increase the total fees; the fees are split between the two notaires.
• For a list of notaires throughout France and a search facility for those who speak English see the website notaires.fr

The Estate Agent

Estate agents (agents immobiliers) in France are usually local to an area and therefore will only have properties for sale within that area. The agent will try to obtain the best possible price for the vendor, but will know what price the vendor will accept. The agent earns commission from the sale of the property and this is usually paid by the vendor, but you should check with the agent as this is not always the case. Commission on the sale of a property may well be in the region of 5%. The agent should also be able to give you an estimation of all the other fees and the property charges that you will be responsible for when you are the owner.
• Most estate agents are members of FNAIM, the Fédération Nationale des Agents Immobiliers

French Banks & Lenders

French banks and lenders adhere to the Banque de France rulings on mortgages. Mortgages in France are “full status” meaning that documentation has to be provided proving identity, income and expenditure. They all have different lending criteria depending on nationality and the country of residence; they all have their own arrangements fees. The banks have all the facilities one would expect from a bank, but the lenders are purely there for advancing money for mortgages – many do not operate their own savings or bank accounts (as do building societies in UK, for example). The lender will introduce you to a bank and arrange for an account to be opened for you.

Mortgage Brokers

Mortgage brokers act as an intermediary between the lender and the purchaser. They should be able to provide you with quotations from various banks and lenders and advise on the various different mortgage schemes that are available to you.

The mortgage broker should save you time in finding a lender that is suitable and supply you with application forms. A good broker will liaise with the lender, foresee and prevent some of the problems that can occur and guide you through the French mortgage procedure. Some brokers will charge their own fees for the work they do on your behalf, others do not charge their clients anything, but you are advised to check for yourself.

Architects & Surveyors

An architect or surveyor should be considered if you are thinking of purchasing an older property, or one that you want to renovate. An architect or surveyor will have experience with planning and obtaining permissions, and be able to give an estimation of the cost. They should also know of reputable builders.

Property taxes and related issues

There are two taxes on all residential property (houses and flats). These are collected by the State for the local authorities. These taxes are assessed at individual rates according to location and can vary substantially. It is advisable to ask your estate agent for these details when you are looking at properties to buy.

Taxe fonciére (land tax): As the owner of a property on the first day of January, you are liable for paying this tax which is due for payment by October/November. Penalties or fines are added for late payment. It is possible to arrange a monthly payment scheme at the outset.

Taxe d’habitation (local taxes): Only due on a habitable building. The occupant of the property on the first day of January is liable for paying this tax. Even if you only use the property on occasional visits, if it is furnished and supplied with water and electricity you are liable for this tax. The amount of this tax will vary from one place to another and according to the size of the property. (If you rent your property to someone else and they are living there on the first day of January for the year, they are liable for paying this tax.)

Charges de Co-Propriétaires (maintenance charges): For those owning property such as an apartment within a complex there are maintenance and service charges to pay. You should consider these charges before signing the Compromis. The charges will vary according to the size and quality of the complex, whether there are lifts, swimming pool, gardens, tennis courts and other facilities.
• See also: Syndics and Co-Propriétaires
Capital gains tax: Calculating any tax due on the re-sale of a property is complicated and professional advice should be sought. The tax is applied to the difference between the sale price and that of the original purchase price plus the transaction costs. In other words – the gain.
French Succession Laws – the Law of Inheritance
French succession law applies to properties if France, even if the owners are not French nationals. It is recommended that you seek professional advice as it is very different to the inheritance laws in many other countries.

There are a few methods by which the French succession law can be avoided. The SCI (Societe Civil Immobiliere) is a type of non-trading French Company, specific to real estate, with a minimum of two shareholders. The home loan will be made to the company (the SCI) with the shareholders acting as guarantors. This type of purchase can have advantages for groups or purchasers wishing to avoid the French succession laws.

One other way which may ensure that a spouse alone inherits the property in the case of the death of the partner is to ensure that their marriage contract is set up as one that is considered to be married in community of property rather than under “separation of goods”.
• Note: The writer of this article is not a lawyer, and any purchasers wishing to look at these options should seek the advice of a notaire. The writer has found this to be a “grey area” with many differing opinions, and urges purchasers to act with caution.

Property Purchase Check List
• Establish the amount of mortgage you can raise, the cost and all the monthly payments
• Contact some estate agents to help you find your ideal property
• Appoint your notaire and complete a preliminary sales contract and pay your 10% deposit.
• Enter into a preliminary sales contract
• Complete the mortgage application and life assurance forms
• The lender, after agreeing you meet all their criteria, and the property has been valued, will issue their mortgage offer to you and the life assurance company will process your insurance application.
• Wait at least 10 days, but no more than 30 days before accepting the mortgage offer and returning it to the lender. When you sign the offer, you are committed to the purchase, the life assurance cover will commence from that date.
• The lender will send details of your mortgage offer to your notary who will then prepare a deed of sale for your signature
• The release of funds will be made at the notaire’s request. The notaire’s fees are now due and payable. Arrange for buildings/property insurance to commence.
• Sign the relevant documentation with your notaire.
• You are now the owner of your French property

Some Pitfalls

The notaire has to be informed to request the monies from the lender in time for the funds to be in place for completion (consider public holidays, postal strikes and also the fundamental task of instructing your notaire).

The Life Assurance application is completed at the same time as the mortgage application. Remember that if the amount of mortgage changes from the original amount, a new life application has to be completed. You may be required to have a medical examination, or your doctor may be asked for a history of your health – both of these factors can take extra time. Should your health be impaired, and the life premium is increased substantially, you may find that it exceeds the 33% allowable net income.

If you are transferring money or proceeds from a previous house to another country, the transfer may be delayed by the bank transfer system and the regulations to which the banks have to adhere.

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