the key steps in buying a property in France - part six
...financing Mr and Mrs Smith's purchase
You may remember that Mr and Mrs Smith made an
offer for their dream property with the condition that they obtain
a mortgage of approximately 200,000€. They understand English law
and know how to obtain a mortgage in England and the timescales for
having the funds released to the solicitor. However, they are
unfamiliar with the French system and need guidance to explain the
legal process.
As in England, Mr and Mrs Smith will have to lodge an
application, which will include their personal details and a list
of assets. It is normal practice for a bank to request this
information so that they can assess Mr and Mrs Smith's financial
ability to raise a mortgage.
Mr and Mrs Smith have lodged their application soon after
signing the initial contract but I have not heard from their bank.
They wondered whether or not they would be able to sign as soon as
the offer is accepted and ask the bank to release the funds to the
notaire.
I will split the mortgage process into four different steps.
- The first step will be for clients to lodge the application
with all the relevant information so that bank can deal with the
file.
- The second step will be for the bank to approve in principle
the application and make sure that their clients will have the
funds available on completion. It is important that all parties,
including the notaire, know as soon as possible if the bank
will not accept the mortgage so they are not tied up to a contract
which may fall through and so that the notaire doesn't carry out
searches unnecessarily.
- Once the bank has accepted the finance of Mr and Mrs Smith they
will receive an offer which will be covered by the legislation
dated 13 July 1979. In accordance with this law the borrower will
benefit from a cooling off period of ten days before returning
the offer duly accepted. In practice Mr and Mrs Smith will not be
allowed to return the offer before the eleventh day by
registered post to the bank and it is the bank's responsibility to
verify that the acceptance of the mortgage complies with the
law.
- In the final step the bank will send a copy of the offer to the
notaire so that he can prepare the Deed of Mortgage or insert it in
the Deed of Purchase.
As far as the release of the funds is concerned it is always the
notaire's responsibility to request the funds from the bank before
completion takes place.
In France, as in England, it is also a normal practice for a
bank to take a charge over the property to secure the mortgage. The
charge will be registered by the French notaire at the Land
Registry and will last for the duration of the mortgage plus one
year.
There are on the whole two different kinds of charge
on French properties.
- When somebody purchases a property in France, a bank will
automatically take a charge called privilege de preteur de
deniers. This charge applies up to the purchase price and will
guarantee first priority rank to the bank. The main advantage of
this guarantee is that it is tax free.
- The hypotheque is the second main type of charge that
banks will take over a property. It generally applies when somebody
wishes to carry out some renovation work and needs to borrow the
funds on the property. Because the client has already purchased the
property, it is no longer possible for the bank to take a
privilege de preteur de deniers and the hyptheque
will be the only kind of charge available. There is usually stamp
duty payable when you take a hypotheque over a
property.
A few years ago French law introduced a new concept regarding
mortgages with the possibility for a person to top up his mortgage
which is similar to the release of equity in the UK. French banks
still seem reluctant to use this new charge, but it could be a
solution for a client who wishes to purchase a property and maybe
carry out some renovation work a few years later.
In Mr and Mrs Smith's case, I think that they will go ahead with
a traditional mortgage. It will be the responsibility of
the bank to provide them with a breakdown of costs if they decided
to go for a repayment or interest only.
Finally, we will mention to Mr and Mrs Smith that repayment of
the mortgage will not erase the charge at the Land Registry. Mr and
Mrs Smith will have to appoint a notaire to prepare a deed called
mainlevee to clear the charge. However, a mortgage with a
fixed repayment period will be erased automatically at the Land
Registry, without any involvement by the client, one year
after the term of the mortgage (unless renewed by the bank).
This article has been published in French Property
News, the most comprehensive guide UK guide to buying
property in France.
