6. Home Equity Release
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, since 2014 it has not possible to obtain a further mortgage. The ban has been imposed to control the level of debt held by households. This type of mortgage is called a prêt hypothécaire rechargeable.
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 referred to as ‘lifetime mortgages’.
In France they are called a prêt viager hypothécaire.
This is a fairly recent change in the mortgage market in France as, prior to 2006 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’.
Since 2006 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.
Their product has been branded ‘Foncier Réversimmo’.
In June 2018 the parent (Banque Populaire Caisse d’épargne) announced it was to close the bank.
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 available to those aged 60+ 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, from around 20% to 35% of the open market value of the property.
The rate of interest on the loan is around 4.8% (2017), 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.
The amount of the loan is determined from the value of the property and the age of the lenders. The older the lender the higher the loan-to-value ratio, conversely, a 60 year old person will obtain the minimum ratio. No medication examination is necessary.
No repayments of the mortgage would be required during the lifetime of the lenders, with the load repaid on death. If the value of the property exceeded the amount of the debt the balance would be reimbursed to the inheritors of the estate; if the debt was greater than the value of the property the difference would be supported by the bank, with no recourse to inheritors.
Inheritors would also have the option of retaining the property by repaying the debt. In other words, the debt would be reversible.
By way of an example of how the loan operates Crédit Foncier cite a couple aged 85 and 83 years, who take out a loan of €150,000, on a property with an estimated value of €320,000.
In such an example the fees in connection with the loan would be €8,000 and the notaire costs and taxes associated with the mortgage a further €3,000, giving a total of €11,000 in charges.
As a result, the basic rate of 4.8% becomes around 6%, annual percentage 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.
We are hearing reports that expats are being refused access to this mortgage, for what appear to us to be rather spurious reasons. We would be very interested to hear if this has occurred to you, by e mailing us at email@example.com.
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