Why is obtaining a French mortgage about to get more difficult?

As reported in The Local

New French banking rules means getting a French mortgage might be about to get more difficult.

Two recent decisions have come into play to raise the bar for rules and criteria for getting a mortgage in France.

France's financial watchdog, the Haut Conseil de stabilité financière, tightened regulations on lending in January, 2021 - notably on the sums that could be borrowed - in an attempt to calm down the country's real estate market in the face of what has been considered risky behavior – the practice of offering longer and longer French mortgage periods and higher loan to values.

The Banque de France, meanwhile, has called on lenders to return to 'good practices'.

"In 2020, in spite of the lockdowns, we had 5.4 percent growth in real estate credit, as in recent years," Emmanuelle Assouan, Deputy Director General for Financial Stability, told Le Parisien.

"We have become the eurozone country where households are the most indebted. We have reached a critical threshold."

Lending limits

Banque de France's key strategy is to limit the amount the majority of mortgage-seekers are permitted to pay in repayments to a maximum of 35 percent of their net income, including "repayment of the borrowed capital and all interest and insurance charges" over a maximum mortgage period of 25 years. In the past, some banks would allow up to 45% or more depending on a client's savings.

It's important to note that all global loans are also taken into account when calculating a prospective borrower's level of debt – car loans, home loans, rent, student loans, personal loans, credit cards with sizable outstanding balances, etc.– in addition to the new French mortgage. Any buyer whose debt to revenue ratio (total recurring revenues as calculated by the French banks divided by to total global loan payments) is more than 35 percent will be refused.

Other requirements

More measures have been taken to discourage high loan to value lending which had become common place in France. Borrowers will be expected to be able to bring a minimum 10 percent deposit on a property purchase, Maëlle Bernier, a spokeswoman for price comparison site Meilleurtaux.com reports.

She added that this would likely mean in effect lenders would be more cautious about who they would lend to, saying: "Then, you would need to have a permanent contract and not be in a sector threatened by the health crisis."

This is an important point in the current situation. Borrowers employed in tourism, aeronautics, catering or events - all sectors badly affected by the pandemic and subsequent lockdowns - could find it more difficult still to get a mortgage because of the precariousness of their employment.

UK Citizens to face challenges for second homes

Brits who want to be buy second homes in France could be facing problems related to Brexit. The good news is, UK citizens who are tax resident in France will not be affected.

As the UK is no longer in Europe, lawyers for French banks have struggled to interpret what rights banks would have if they ever needed to reclaim a French property from a UK citizen due to missed mortgage payments. It's not clear at all. Apparently the stance is aimed for compliance with new regulatory requirements in force in the United Kingdom.

Many banks have adopted the rule that UK residents buying a second home in France and wishing to obtain a mortgage must qualify as a high net-worth or high-income individual, unless they are purchasing a primary residence or a property which will be mostly rented out.

This means they will need to earn at least £150,000 per year or have £500,000 in net assets. For couples, this is required for each borrower which creates a barrier for many prospective borrowers.

Posted February 23, 2021