5. Type of Mortgage Loans in France

1. 5.1. Capital and Interest Repayment
   5.2. Interest Only
   5.3. Bridging Finance
   5.4. Equalising Mortgage
   5.5. Equity Withdrawal
   5.6. Home Income Plans/Lifetime Mortgages

5.6. Home Income Plans/Lifetime Mortgages in France

These mortgages are equity release 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 ‘home income plans’ or ‘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 ‘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.

The regulations have only recently been published on these mortgages and 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.