Friday 03 April 2020
In the face of the pandemic, it is possible to obtain some assistance with relief from mortgage repayments, but at a cost.
Although in the UK and several other European countries, homeowners have been granted a ‘mortgage holiday’, that is not the case in France.
The brokers association (Association Professionnelle des Intermédiaires en Crédits - APIC) have asked the government that mortagees facing difficulties be given a six-month holiday, but the Fédération bancaire française (FBF) have stated that there are no discussions taking place about further measures.
The French government have made no public expression of their views on the subject, but the Banque de France have stated that there is no need to provide assistance with mortgage repayments due to the income support measures that have been put in place.
Nevertheless, for those facing a reduction in their income, even under existing rules it is possible to negotiate a reduction in the monthly amount or suspension of mortgage payments. More rarely, you may also be able to refinance your loan with another lender.
The banks are reporting that they are dealing with many thousands of applications for relief.
Most mortgage contracts allow borrowers to reduce their repayments (moduler ses échéances) by between 10% and 30% month, depending on the terms of the contract.
However, this standard clause cannot be activated until you have been paying the mortgage for at least a year, more often two years. So, if you have only recently taken out a loan you will not be eligible.
In addition, the mortgage term cannot normally be extended for more than two years, which maybe increased to five years provided the duration of the loan does not exceed 25 years.
You will need to continue to maintain your mortgage protection insurance payments, which of course will need to be extended to cover the increased duration of the loan.
French mortgage contracts are less generous when it comes to a right to suspend your monthly payments.
If included, such a provision is called suspension d’échéance or report d’échéance.
Nevertheless, whether or not there is provision, all lenders take a pragmatic approach to difficulties faced by their borrowers, particularly at this time. The overriding priority of the bank will always be to try and maintain continuity of payments, rather that having to resort to legal proceedings.
As a general rule, suspension of payments is normally restricted to a maximum of one year, more often only for several months.
Once again, strictly speaking, you will only be eligible provided you have made mortgage repayments for at least one year, sometimes two years.
In some cases, the bank may only be willing to suspend payment of the capital (report d’échéance partiel), leaving you to continue to maintain payments of the interest.
Neither, once again, is it possible to suspend payments of the mortgage insurance, which will need to be extended; the deferral of repayments does not mean that the credit is interrupted, so you need to be protected in the meantime as the borrowed sum is still due.
Needless to say, suspending your payments will increase your costs, due to the increased interest that arises on extension of the loan. Although in recent years interest rates have been low these increased costs can be very significant, running into hundreds, and potentially thousands of euros. The earlier in the repayment phase the higher the cost, due the higher level of interest when the outstanding principal is highest.
It may also be possible that the bank will impose an administration fee for suspension of payments, although this is not normally the case for a reduction in payments.
As banks are closed at the present time, the application will need to be made on-line and as all banks are operating on reduced staffing levels there is likely to be some delay in processing your application.
If you are running a business and the bank is unwilling to assist then it is possible to take the matter to the Médiateur du crédit.