Guy Watson-Smith
19 December 2007

Financing a residential property in France.

Today Guy Watson-Smith, an expert on residential property investments in France, talks about some of the French mortgage options for South Africans.

The standard mortgage:

• The interest rate for a standard mortgage is about 4-5% and adjusts up or down only once a year, on the anniversary of the loan. The rate is fixed to the European Central Bank rate.
• Loans can be taken out over periods up to 20 years, although 15 years or less is usually recommended for people who will turn 70 before the end of the loan period.
• Adjustments in interest rates normally do not affect the monthly repayments; instead the term of the loan is extended or reduced ;
• Life insurance at a rate of about 0,30% is built into the interest rate. Applicants who will be over 70 at the end of their loan will be offered a "senior contract" and insurance is calculated individually.

The ‘‘interest only'' option:

• This is not available from all lending banks in France but suits many borrowers more than the standard mortgage. There there are no death duties on the investment which secures the loan.
• Furthermore, for the same loan, monthly repayments are generally up to 30% less. It may be necessary to "shop around" as one major lender, for example, will no longer accept investments from outside the EU. With the fear of money laundering, the rules change without warning.
• This option has the bank paying for the property in full and the borrower repaying only the monthly interest on that loan. The borrower is required to put an amount on investment with the bank under a life insurance plan, with a guaranteed minimum return calculated to ensure that the borrower's asset at the end of the loan period will cover the loan entirely.
• There is no legal limit to the amount that the borrower can invest (above the amount required to secure the loan), and withdrawals are allowed with only 48 hours of notice.
• Effectively the investment account is an "offshore account" because for non-residents there are no taxes or death duties whatsoever.

How to buy

It is possible to borrow and invest in individual's names, joint names, or as a company set up for the purpose of the investment.

The perfect vehicle for this in France is a tailor made SCI, (Societe Civil Immobilier). This needs a minimum of two shareholders and any division of shares, and has estate planning and capital gains' advantages.

South Africans can apply for a 70% mortgage. Residence is defined in terms of where the applicant earns an income and pays taxes, not by the passport.

This article was originally posted here:
http://www.realestateweb.co.za/realestateweb/view/realestateweb/en/page3...