3. French Mortgage Loan Guarantees

1. 3.1. Conventional Charge
   3.2. Priority Lien Charge
   3.3. Institutional Guarantee

3.3. Institutional French Mortgage Guarantees

In order to reduce transactions costs to borrowers the banks have created an alternative to a mortgage, through the use of an institutional guarantee distributed by mutual organisations.

Institutional guarantees are called la société de cautionnement. They operate on the simple basis of the mutualisation of risk between the lenders.

The guarantee is available for new or older properties but, as a general rule, it is only available to those with a good credit record and a stable income.

It is also only available if you are fiscally resident in France.

Under the system, the mutual funder acts as a guarantor in the event of default by the borrower on their loan. In turn, the borrower pays the funder a fee that is proportional to the size of the loan.

However, this does not imply that your house is not at risk if you do not make the payments, for the lender can ultimately seek debt recovery in the courts and enforce the sale of your property if you do not pay.

The fee structure varies as between the lenders but it is not usual for it to be in two parts – a fee for the guarantee, which is 75% reimbursable when the loan is repaid, and an arrangement fee that is retained by the guarantor.

The fee for the guarantee is about 1.5%-2% of the loan and the arrangement fee varies around 0.5% of the loan.

Thus, on a loan of €120,000, the initial fee might be in the order of €2000, made up of an arrangement fee of €750 and a fee for the guarantee of €1250.

The former is retained by the lender and the latter is reimbursable at the end of the mortgage at the rate of 75%. This would give net fees of around €1000.

In some cases the fee is not reimbursable, but in these cases the intial initial fee payable will be lower, e.g. 1%.

Perhaps the largest organisation specialising in such guarantees is Le Credit Logement, which is funded by most of the major banks.

Other mutual lenders have the acronyms 'SACCEF' and 'BRED'. Whilst BRED is part of the Banque Populaire, SACCEF is funded through a syndicate of banks.

Alternatively, visit your local bank and ask them about such a loan.