6. Home Equity Release

1. 6.1. Equity Withdrawal
   6.2. Lifetime Mortgages

6.1. Equity Withdrawal French Mortgages

If you have no existing mortgage on your property there is no reason, in principle, why you cannot obtain a normal repayment mortgage on the property from a lender to fund home improvements, the purchase of a car, or other expenditure.

Naturally, you will need to meet the usual criteria of the French lenders, most notably that the total level of debt repayments cannot exceed 33% of your total income.

You will find that if you are seeking funds for home improvement, a mortgage is likely to be cheaper than if you are seeking the funds for other types of expenditure, e.g. car purchase.

Where you already have an existing French mortgage on your property then, hitherto, the rules have not permitted the creation of a second mortgage charge on the property.

The rules were changed in 2006 along the lines more familiar to Anglo-Saxons.

A second mortgage can now be raised against equity in the property up to 90% loan to value, provided you meet the usual income criteria.

The minimum level of the loan is €21,500.

In general, you will not be able to borrow more than the total amount of the original mortgage.

Thus, if you took out a €100,000 mortgage 10 years ago and you have repaid €40,000 of that mortgage, you will able to ‘recharge’ the existing mortgage by the same amount.

This new, additional mortgage can be from a lender other than the existing lender.

In principle, the mortgage can be used for any manner of expenditure, such as home improvement, loan consolidation, car purchase, property purchase etc.

A cautious approach is being adopted by the lenders in relation to this new type of mortgage product. Indeed, few lenders of this product are yet in the market place, with Crédit Foncier, L'Union de Crédit pour le Bâtiment (UCB), Caisse d'Epargne and Banque Privée Européenne (BPE) the main current lenders.

The loans need not be secured on the property, necessitating the involvement of a notaire, but through a institutional guarantee offered via a bank or insurer. This obviously reduces the cost and speed of the whole process.

As this is a new product on the market we have few details on the terms of these offers, but as information becomes available we will update this page.

6.2. Lifetime Mortgages in France

These mortgages are schemes in which you release some of the equity value in your home in return for a regular income or capital sum, with the mortgage repaid following your death.

In the UK, they are sometimes also referred to as ‘lifetime mortgages’.

This is a recent change in the mortgage market in France as, hitherto, this type of mortgage did not exist.

The only solution was to actually sell your home to an investor and to remain in occupation for life, receiving from the investor a monthly income and a capital sum.

This system was called a sale under viager.

In the UK there are similar schemes known as ‘home reversion plans’.

Now there is no need to actually sell your home as you can get a mortgage under viager.

So, part or all of the equity of in a property can be released, in return for a monthly income or capital.

As in the UK the loan is repaid following death of the occupant(s) from the sale proceeds of the property.

Alternatively, they may also be repaid on sale of the property, if the owner(s) decide to relocate.

To date there is only one offer in the market place. It is from Crédit Foncier, the specialist mortgage arm of the Caisse d‘Epargne.

Early indications suggest lenders are going to take a cautious approach, with the terms of such mortgages tightly drawn, notably in relation to the age of the client and the loan to value percentage.

In the case of the offer from Credit Foncier, the mortgage is only available to those aged 65+ and for a minimum amount of €20,000.

The maximum amount available is a percentage of the open market value of the property, which varies according to the age of the applicant. The maximum percentage for someone aged 65 is up to 20%, whilst for someone aged 75 it is 34% of the open market value of the property.

The rate of interest on the loan is around 8%, with fees of 4%, figures that reflect the reluctance of the banks to enter this market. There are also notaire fees and taxes, so the actual APR of the loan will be in excess of the basic interest rate.

Remember also that interest is payable on the total compound debt outstanding, a sum that will increase significantly each year, with the result that the debt/equity relationship may well change over time.

Thus, if the value of the property does not increase at the same rate as the level of the debt, then the bank will control a higher percentage of the value of your home.