Buying Property in France
Buying property is one of the most major investments we make in our lives. For yacht crew, it’s rarely for a primary residence, which makes the considerations for buying a little different.
Location will always come first, but when using property as an investment, yield should be a very close second. This is the net annual rental income (after all costs) divided by the value. One of the biggest reasons why property is considered the best investment is because it’s possible to leverage, or borrow, to buy it, especially when interest rates are low. For example, if you buy property for €200,000, and it gives a rental income of €8,000 per year, a four-percent yield is realized. If you only invested €40,000 and borrowed the remainder at three percent interest, then you immediately double your yield to eight percent. This is a compelling reason not to invest all your capital into a property. Even if interest rates are higher, it may still make sense, as it’s often possible to offset the interest against rental profits to reduce income tax.
Buying property in France is very popular amongst yacht crew, especially near the yachting centers of the Côte d’Azur. This is because the property can be a great escape in the winter when the yacht is in port or the yard, and also gives a great seasonal rental yield in the summer, the time when crew are hard at work.
These areas also are very sought after and selling a property is rarely difficult. The costs of buying in France are quite high; government taxes and notary (legal) fees total approximately 7.5 percent of the purchase price, and agent fees (when you sell) can be five or six percent. This means 13 percent growth on the property is necessary to make any capital profit, which is why property should be seen as a long-term investment and why rental yield is important. Annual taxes also apply and vary depending on where the property is located and its size. Borrowing in France is still possible for yacht crew, although it’s getting a little harder as banks tighten their rules. Generally, crew can borrow 75 (sometimes 80) percent of the purchase price. This means you need approximately 32.5 percent deposit (including notary fees) to start your property portfolio.
French lending laws allow you to be up to one-third of your income in debt, so if you earn €3,000 per month, you cannot spend more than €1,000 on your debt repayments. Over 20 years at three percent, €1,000 per month equates to a loan around €185,000. For tax-resident yacht crew (in France or any other country), the loan-to-value can often be higher as tax documents make banks feel more comfortable about lending. Any rental income is taxable in France, whether you are resident or not, and capital gains tax and inheritance tax will be initially liable in France, too.
There are many considerations when buying property, so seek good, qualified advice especially if it’s part of an overall plan; a mortgage broker should be able to find the best terms for you, often at no cost.
Spanish Mortgage News
In the last two months, we have seen some incredibly positive things happening in respect of mortgage lending for non-residents. This affects not only product conditions (see below), but also service standards.
In March, two of the main lenders contacted one of our mortgage brokers us to ask us if they could meet decision makers in their banks to understand how they can compete for and win more non-resident mortgage business. They met with two members of the Board of Directors of one of the largest banks in Spain and last week we met two senior officials from another of the largest banks.
At these meetings we advised that to compete effectively banks need to offer at least 70% of purchase price, with no compulsory life assurance, without a minimum rate (“suelo”), for all nationalities, and to improve the efficiency and turnaround times for approvals.
We have also advised that debt-to-income ratios could be increased to gain more business from rivals, but this seems to be something that is harder to get banks to change. Many banks are currently using a 30% debt-to-income ratio, so monthly debts (including the new Spanish mortgage) must not exceed 30% of overall net monthly income. Some banks are using 40%, but these banks are not offering the best conditions. It is worth noting that the 30% rule is often relaxed slightly for high-earners.
We anticipate that changes will be made one step at a time, but have been very encouraged by the results of these meetings. Here are some new conditions we have been involved in negotiating:
- 70% now available for most other nationalities (case-by-case basis for non-Europeans)
- Low interest rates from annual Euribor + 2%
- Products without compulsory life assurance
- 30-year terms available
- Fast-track approval with decisions in 1-2 weeks from submitting all requested documents
For Scandinavian clients, as most agents are already aware, Nykredit has often been the preferred bank to use because they offer attractive conditions and 70% for Scandinavian nationals (up until recently they offered up to 80%, but this is now very difficult to achieve with them). We are getting more and more Scandinavian clients coming to us telling us that Nykredit has declined their mortgage, is taking an eternity to approve it or requires them to invest large sums to get approval for 80%. What is clear is that Nykredit is purposefully slowing down its lending for Spanish property purchases. This now appears to be in contrast to the leading Spanish banks. Nykredit has also made clear that it is not keen on self-employed applicants, cheaper properties, non-touristic areas and even some very popular holiday destinations such as Ibiza.
Fiscal Residents – 80%
Non-residents – 70%
|EURIBOR*||12 month (annual) – 0.549%|
1 GBP = 1,1952 EUR
1 EURO = 0.8367 GBP
Data correct at the time of writing
* Based on purchase price or bank valuation (lowest of the two)
** All non-resident mortgages are now based on the annual Euribor with a loading of 2 – 4%. The margins now vary considerably depending on the bank in question and the customer profile and some banks have minimum rates
Reflections on the recent ‘French Property Exhibition’ in the UK
For the first time The Spectrum IFA Group participated in this regular UK event on the 9th – 10th May as part of Le Tour De Finance Roadshow (www.letourdefinance.com)
Organised specifically for those UK residents looking to purchase property in France as either a second home or for a permanent move, the event brings together a range of experts to help delegates further their plans & aspirations.
Amanda Johnson & Bérangère Chabenat represented The Spectrum IFA Group this year, with the aim of providing attendees information on financial planning & mortgages which would assist potential buyers in their longer term financial situation.
The event was very well attended & many delegates took the opportunity to enter our free prize draw, the winner receiving a hamper containing some of the Loire Valley’s excellent sparkling wines, champagne flutes in which to enjoy it & local confiture de vin.
Le Tour de Finance was of great interest to many attendees, with eight people signing up to attend the events in June & several others expressing a wish to be informed of future seminars.
After a full day of manning the stand, Amanda & Bérangère found the opportunity to network with other exhibitors in the evenings over a glass of wine.
A good time was had by all.