People buying holiday homes in France are increasingly taking out French mortgages rather than buying with cash, says Assetz Finance.
Traditionally, the majority of British purchasers of French holiday homes to use personally have purchased their property outright, without any loans, using savings, inheritance or equity release on their UK property to finance the purchase.
Investors buying buy-to-let apartments or French leaseback properties would rarely consider financing their purchase in this way, intending instead to maximise their returns through the use of bank gearing and a minimal 15-20% deposit.
However, over the last 12 months, Assetz Finance has noted a rise in the number of British holiday home buyers opting for a French mortgage, from approximately 33% in 2005 to 50% in 2006, as people begin to recognise that they are both readily available and easy to use as a viable method of finance.
Katy Hepworth, overseas mortgage manager at Assetz Finance, says: “In the past French mortgages were less widely available and were renowned for being difficult to secure, meaning most holiday home buyers did not even consider using them and instead struggled to finance a cash purchase from the UK.
“This is no longer the case, however, and a considerable number of British purchasers in France are starting to take advantage of French mortgages which are consistently 1% – 1.5% cheaper than in the UK.”
The Euribor base rates used by French lenders range from 3.3% – 3.8%, whereas the Bank of England base rate is currently at 5.0%.
Therefore it is cheaper to borrow money in France to buy a property, than to release equity from a UK home.
A large number of holiday home buyers in France intend to rent the property out for a number of weeks every year.
By securing a Euro mortgage that is paid via Euro rental income, if the value of sterling gains against the Euro, only the small amount of equity injected into the purchase (normally 20% – 30%) would lose value in currency terms.
However, if the property had been purchased in sterling without a French mortgage, the full purchase price would lose value.
From a tax perspective, mortgage interest can be deducted from any French income tax liability if the property is making rental income, presenting another advantage of using a loan to finance a French property purchase.
Furthermore, any outstanding mortgage can be deducted from any French wealth tax liability calculation.
Hepworth adds: “In the past British people buying holiday homes in France have missed out on low interest rates, tax and currency advantages, often because they are daunted by the language barrier.
“However, buying with French finance is now a path so well-trodden by investors, that a considerable number of holiday home owners are now following suit and taking advantage of overseas mortgages.”