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Brittany Local Reference INFOrmation
If you are looking to buy property in Brittany - whether as your main residence, a second home or as an investment property, AngloINFO has a great deal of information available to help you.
The Steps to Buying Property in FranceThe whole process of buying any type of property or land in France is strictly regulated. Firstly you should decide how you will buy your property. There are three options:
Initial CostsWhether you are buying for cash or with a mortgage there are some costs you are going to have to fund yourself.
The Costs of a MortgageMortgage deposit: The minimum amount you need to provide as your deposit for a mortgage depends on your nationality, the country you live in and where you pay income tax.
Arrangement fee: All of the French banks and lenders charge arrangement fees. Most charge 1 percent of the amount of the mortgage, many with a ceiling limit of €1,500, but it is advisable to check because they do differ from each other and some do not have a ceiling limit at all, so you may end up paying 1 percent of the total mortgage. The essential elements for qualifying for a mortgage
Working out your price rangeIf you need a mortgage to buy your property, you should establish just what price range you should be looking at and whether you have enough cash funds for the deposit and legal fees and that your income is sufficient to afford the monthly cost of your French mortgage. You should now be seeking professional advice, about the basic lending criteria and the various options and mortgage products available to you. Again you have a few options:
There are very strict rules which are imposed by the Banque de France on all the French banks and mortgage providers. These rules govern the amount a person can spend each month on a mortgage. Only one third of your monthly income can be used to service any existing mortgage or rent, other loans, maintenance payments if applicable and credit card repayments (if the outstanding balance is not cleared every month). What is left from your third of monthly income can be used to service a French mortgage and must also include the cost of life assurance. Income from tax declared earnings, pensions and maintenance payments are classed as standard, but income from investments has to be generated from recognised and acceptable income investment products, or portfolios. Rental income from long term tenancy agreements can be taken into consideration, but usually only up to 80 percent of the monthly rental income received. Income earned from holiday lettings is not considered as a guaranteed income and is not classed as regular income, except in some cases (such as gîtes and chambre d'hôtes self-catering holiday accommodation and Bed & Breakfast businesses) when there is an historical track record of a holiday letting business.
Life assuranceIt is a requirement that all mortgages in France are covered by life assurance. Many of the French lenders insist that you use their policies and that it covers all the terms of your mortgage. Some lenders have different policies and insist that full disability cover is included as well as life cover. Life assurance policies are medically underwritten and with a good medical record the premiums will be at standard rates. If the medical history is not good, then the premiums may be rated higher. There could be further problem if the premium is increased to a level where the cost of the mortgage and the life cover exceed the third of income ruling. Finding a PropertyMuch information is readily available from magazines and Internet websites advertising properties for sale in France; it is very easy to get an idea of what type of property is available and at what cost before you actually start your search. There are many ways to search for properties: estate agents, property magazines and ''home hunters". In more popular or urban areas you will probably find estate agents who offer an English speaking service. Think carefully about the location and type of the property depending on whether you plan for it to be your main residence, second home, holiday home to be let out on occasion or a property to be let as an investment for the future. Make a list of the important elements - the purchase price, the overall size and number of rooms, is a cave (cellar) or garage essential, would you prefer a garden, terrace or balcony, etc - it will keep you and your estate agent or "home hunter" on the right track to find your ideal property. The type of property and its condition is also an important consideration. There are certain types of properties that will not be acceptable for mortgage finance and the property should be classed as "habitable" meaning structurally sound and having the basic utilities of electricity, mains water and sewerage system, all conforming to the current regulations. It will be very difficult, if not impossible, to raise mortgage finance on buildings constructed of wood, stone cabanons, derelict barns and properties with agricultural land. Some lenders will not accept properties that have been registered for commercial use such as gîtes and chambres d'hôtes. Buying to renovate or build a new property demands careful pre-planning. Certain French building regulations are very different from other countries and permission has to be granted from the local mairie (Town Hall). Detailed applications must be completed for the Certificat d'urbanisme (certificate of town planning/urban development) and other documents, which state what developments are allowable on the property and its land. You will need the advice of an expert - an architect or surveyor. If you are relying on mortgage finance for renovation works, then the works will have to be completed by tradesmen who are registered in France. Registered tradesmen have the correct insurances covering their work - it is the essential guarantee for the bank or lender. Purchasing a PropertyOnce you have found a property that is suitable and your offer has been accepted by the vendor, you will be required to sign a sales contract, the Compromis de vente (sometimes called the Promesse de vente). The Compromis de venteThe notaire or agent can draft the Compromis de vente, which will be written in French, but may have an English translation. Whoever is named as the purchaser(s) and you are intending to use mortgage funds, the same name(s) must appear on your mortgage application. The Compromis is a legal contract, you should read it carefully and consult your notaire before signing it to check that all the details and conditions are correct, such as:
The let out clausesFor you, the purchaser, the clause suspensives protect the deposit you gave to the notaire or agent as part of your agreement to purchase the property.
On the day of signing the Compromis de vente you will be required to pay your deposit to the notaire or the agent. Once you have signed the Compromis de vente, the clock starts ticking. You have got a set date by when you should complete on the purchase. You are given 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 or inspection. Even though you may have a clause suspensive in the Compromis stating your agreement to buy is subject to mortgage finance, if you do not make reasonable efforts to obtain mortgage finance in time, then you could lose your deposit. The mortgage procedureUnder French law, all mortgages are "full status" and a lot of documentation is required to support your mortgage application. Lenders are obliged to ensure that any person applying for a mortgage is financially able to meet the mortgage repayments. Apart from a completed mortgage application form, life assurance form and a copy of the Compromis that has been signed by both you and the vendor, you will need to provide photocopies of:
If you are buying a "new build" or wanting to include the costs of works /renovation in your mortgage you will need to provide further documents:
Life assurance is mandatory to cover all the terms of your mortgage. Most of the banks and lenders insist on their own in house policies are used and the medical underwriters may ask you to have a medical examination or tests. When your file has been thoroughly checked and approved by an underwriter,
the lender will request a valuation of the property. Should you be declined mortgage funds, either because of financial information, medical underwriting or the unsuitability of the property, the lender will advise you and issue you with a letter which you can use as your proof to have your deposit refunded to you as agreed in the Compromis let out clause. Subject to everything about your mortgage application being acceptable, a mortgage offer (offer preable du credit) will be issued to you. The rules about signing and dating your mortgage offer are very strict. There is a 10 day cooling off period. This is a legal requirement and allows you sufficient time to consider the terms of your mortgage before returning the documents to the lender by post. Some lenders will want their arrangement fee paid on acceptance of their mortgage offer and your life assurance policy will by put on risk from the date you signed the mortgage offer. You must sign and date the offer letter after waiting 10 days but before 30 days have elapsed. If you get the date wrong, a new offer letter will have to be issued with another waiting period of 10 days. When the lender sends you the mortgage offer they also inform your notaire of the details of the mortgage. Completion date should be concluded within 4 months of receipt of your acceptance to the mortgage offer. Completion dayYou can now arrange a time and date for completion to take place. It is your responsibility to instruct the notaire to request the mortgage funds from the lender. Once you know the date you will be completing on your property purchase you will need to make sure that your French bank account is open and funds are being transferred into it in time for the completion date and arrange for buildings insurance to be on risk from the date of completion. You will need to provide details of the insurance policy. You will be sent a draft of the acte de vente (projet de l'acte) (final deed of sale) a few weeks before the completion date. It will contain much of the same information as in the original Compromis, but check it through carefully. It will also state the date that you may move into the property. You will be asked to produce your birth certificate and passport together with marriage certificate and divorce decree if applicable. If you think you may be unable to attend the meeting to sign the acte de vente (final deed of sale) you can give a trusted person or friend a power of attorney (a mandat) which authorises them to act on your behalf if you unable to attend the actual signing. The acte de vente is signed by you (the buyer), the vendor and one notaire. If both you and the vendor have different notaires, only one needs to witness the acte de vente. Once the acte de vente has been signed and witnessed, the notaire has to pay all the taxes, settle all the accounts of the purchase/sale and register the deeds and mortgage. A few months later you will receive a certificate informing you that the title has been registered. The original title deed is kept by the notary, although they may make authorised copies Mortgage Products and their UsesIn France, mortgages have in the main been used to purchase property or to fund improvement works. The range of mortgage products was very limited and re-mortgaging or re-financing was virtually impossible. There have been a few changes, but during 2006 and 2007 the changes have been more significant in the way some of the banks and lenders are able to offer solutions, especially to equity release mortgage. A mortgage can be used to:
Choosing the right type of mortgage which is suitable for you and your circumstances is essential. Capital & interest repayment mortgage (variable rate)Probably the most flexible of mortgage products. You know what your repayments will be. The interest rate applicable to your loan is revised on a regular basis. Should interest rates fluctuate, your repayments stay the same - only the term of your loan is effected. A rise in the interest rate will increase the term of your mortgage. A fall in the rate of interest will reduce the duration of the loan. There is a maximum of 5 additional years that can be applied to your mortgage. You are able to make lump sum payments or redeem your mortgage early without incurring any financial charges or penalties and you can change to a fixed rate at any time. However, if you do convert to a fixed rate you will have to pay a charge in the event of early redemption. Capital & interest repayment mortgage (fixed rate)The repayments are fixed for the whole term of the mortgage. You know exactly what you will be paying each month and how many payments you will have to make. Fixed rates are usually higher than variable rates. Financial penalties can be charged for redeeming your mortgage early, or even changing to a variable interest rate. Each bank and lender will differ and it is advisable to check exactly what their financial penalties are. Interest onlyThe majority of interest only mortgages that are offered by the French banks are quite different and work differently than what you might expect and there are two products. With both products, the term of the mortgage is divided into two phases.
Because you are repaying the capital over a shorter period, during the second phase your monthly repayments will suddenly be much higher. Or the alternative product, your deposit is used as collateral which is estimated to grow at a set rate. Again the term of the mortgage is divided into two phases. During the first phase you pay only the interest on the mortgage. At the end
of the first phase your collateral is valued and is deducted from the amount you
originally borrowed. A pure interest only mortgage is possible, but not readily available to anyone as the lending criteria is very strict and the minimum lend is €100,000. (For further information contact the author of this article). Equity Release MortgageOnce virtually impossible, but with the increase in the number of international buyers, some banks have responded to the needs and requirements to those people who want to release some of the equity in their property. During 2005 and 2006, Equity Release was introduced, but the lending criteria was so strict that many people were excluded many from benefiting (for example, self-employed people and SCI - Societe Civile Immobiliere). Although many banks are choosing not to offer equity release, there is a growing number that are, and it is possible to release between 50 percent and 70 percent of the value of the property. The lending criteria are still strict, but now equity release is available to self-employed people and SCIs (subject to their terms and conditions). The equity release mortgage is usually on a fixed interest rate, and is higher than the standard capital and interest fixed rate. There are financial penalties attached with this mortgage. Pre-Sale Efficiency ReportBefore a house may be sold, it is obligatory (since 1 November 2006) to have an
energy diagnosis (diagnostic de performance énergétique).
The efficiency report assesses energy usage and and natural risks along with noting the presence of asbestos and lead. It includes technical recommendations for improving consumption. There is a fee payable. Note: these estimates will not constitute a contractual guarantee, but will allow an objective comparison of the quality of buildings put on sale. Real consumption of a building will depend directly on the electrical and heating usage by residents.
The diagnosis is also required on rental properties and new builds. The Professionals Involved with Property PurchaseAs soon as you start thinking about buying a property in France you are going to need professionals who will help and advise you. The estate agent and property searcherEstate agents (agents immobiliers) are usually local to an area and therefore will only have properties for sale within that area. The agent earns commission from the sale of the property and will try to obtain the best possible price for the property, but will know what price the vendor will accept. They should also be able to give you an estimation of all the other fees and the property charges you will be responsible for when you are the owner. The more significant trade associations representing the Estate Agents in France are:
Property searchers, as their title implies, will search for a property for that is within a price bracket and matches requirements. Many offer a personal service, taking you to view the properties they have short-listed for you. Some will charge a fee, while others will take a percentage commission from the immobiler instead. Estate agents, property searchers and property managing agents should be properly registered and carry an appropriate "professional card" (Carte Professionnelle). Issued by the Préfecture, it is their licence to carry out the property sale (carte professionnelle de transaction sur immeubles et fonds de commerce), property search (marchand de listes) or property management activity (gestion immobilière). The NotaireThe notaire is a public official and given the title of Maitre. The notaire is highly qualified in the French legal system and is able to advise about property, family and succession, and corporate laws. The state confers powers on the notaire to legalise property purchase transactions 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 and 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 may use the same notaire as the vendor. Using two notaires may cause delays to the property purchase, and may also slightly increase the cost of legal fees (you are advised to check with your notaire).
Mortgage BrokersA mortgage broker will have agencies with various French banks and mortgage providers, will understand how they react to certain cases and circumstances, and will act as your intermediary with the lender. Newly introduced legislation in 2005 has meant that mortgage brokers, or mortgage advisers, must have their own professional indemnity insurance and be registered with each bank and mortgage provider they represent. With all the banks and lenders having different lending criteria and products, your mortgage broker should save you a considerable amount of time in finding a lender that is suitable to your personal requirements, be able to advise on the various different mortgage products, supply you with quotations direct from the lenders, their mortgage applications and life assurance forms together with guidance for which documents you will need to provide to support your mortgage application. A good broker will liaise directly with the lender, foresee and prevent some of the problems that can occur and guide you through the French mortgage procedure. Mortgage brokers receive their commission direct from the bank or lender they introduce business to. Most of those who are registered in France will not charge you fees for their services, but you are advised to check for yourself. Architects and surveyorsAn architect or surveyor should be considered if you are thinking of purchasing and older property or one that you want to renovate. They will have experience with planning and obtaining necessary permissions and certificates, and be able to give an estimation of the cost. They should also know of reputable builders who are registered as such and who have their own insurances to cover their work which is essential if you are using mortgage funds for renovation or improvement works. Property Taxes and Related TopicsThere are two taxes on all residential property. 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. French Succession Laws - the Law of InheritanceFrench succession law applies to properties in France, even if the owners are not French nationals. Under French succession law a person may not leave their assets to anyone they please. Protected heirs come first, while the spouse or partner is treated very differently. With effect from 1 January 2007, only children are considered as protected heirs (previously this included parents). Advice should be taken your the notaire, and act on it before signing the acte de vente. It is difficult to make changes once the acte de vente had been registered and can cause serious consequences. Even for straightforward family circumstances advise should be sought, but if your situation is more complicated, because of being married more than once or having children and step-children, it is essential.
SCI - Société Civile ImmobilièreAn SCI is a property company. Although it can be used to minimise succession tax by gifting shares to your children during your lifetime, they are usually used by a group of unrelated people to purchase a property as co-owners. An SCI is meant to be non-trading, therefore it is not the right solution if you are planning to run gîtes or chambres d'hôtes. From a UK tax perspective, a director of an SCI, and having free use of a property in France for holidays, then you can become liable for income tax on the assessed benefits in kind. Taking professional advice is essential.
Capital gains taxCapital gains tax only applies if you are selling a secondary residence. There is no capital gains tax incurred if you sell your main home to buy another. 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.
Wealth taxIndividuals resident in France on 1st January and non-residents who have assets in France are taxed on the basis of their assets as at 1st January each year. Wealth tax only effects those with assets over a certain rate and is calculated in bands above that figure.
Further information
Article by Carole Bayliss of mortgagefrance.com Any suggestions for extra information that should be on this page? |
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