Fees Associated with Purchasing Property
Biarritz, Bordeaux, Montpellier, Grenoble and Lyon are all areas where house price inflation was relatively stable until the low cost airlines started flying into nearby regional airports. Over the past few years, property prices in these areas have increased significantly, some as much as 40 per cent!
When buying your dream property in France you should take into account the various fees and taxes. Here are some examples:
- solicitor (or 'notaire') fees and commission
- estate agent fees
- property registration fees (droits d'enregistrement)
- taxes - 'TVA' (French VAT)
- foreign currency exchange costs (if applicable)
- surveyors fees (if applicable)
- mortrgage fees
Solicitor or 'notaire' fees
The notaire's fees (frais de notaire) are fixed at the outset and are payable by the purchaser. The deposit of the property is paid to the notaire upon signing the compromis de vente, however, additional notaire fees are payable in the form of local and national government taxes. Although they can vary slightly, fees are generally around 8% of the property price for older property and 4% if the property is less than 5 years old (frais réduits).
If you buy a property direct from the notaire you should still expect to pay a commission. This can be anything up to 5%.
Estate agent fees
It is not unusual for the property’s sale price to include the commission of the estate agent, often payable in France by the buyer. In fact, this is a question you should ask the estate agent at the beginning of your purchasing process. If you, the buyer, are then responsible for this element you should make sure that this is clearly stated within your contract particulars so that it is not added to the sale price on which the notaire's fees are based. Estate agents can charge anything from 4 to 12% of a property's selling price.
Property registration fees (droits d'enregistrement)
Land registry fees are similar to the UK's stamp duty and are are dependant on the price and age of your property. If you are buying a property that is more than 5 years old, you can expect to pay a 'droits d'enregistrement' of approximately 5%. Property less than 5 years old will be subject to fees of less than 1 per cent.
TVA is France’s equivalent of VAT. It is currently paid at the rate of 19.6% and will be charged on most fees and commissions.
Foreign currency – foreign exchange rate fluctuations
If you are planning to purchase your overseas property with equity released from the remortgage of a UK property or other cash funds, then you may need to convert your sterling cash into euros. This can be expensive and risky as you leave yourself open to currency exchange rate fluctuations. From the initial signing of the contract until the completion date, the amount of UK pounds required to buy the property in euros can change substantially. Yes, sometimes you can end up in pocket if the UK pound goes up against the euro. However, you can also end up significantly out of pocket should the euro rate move the other way. There are steps you can take to minimise these risks, such as using a company to effectively ‘lock’ your exchange rate months in advance. Today, there are a lot of companies that provide currency exchange risk solutions. Some are better than others, but here are a few we found operating in the marketplace Caxton FX, HiFX and new to the market Ireland FX. All of the above specialist companies will generally have competitive deals to entice French property buyers away from the high street banks.
UK buyers generally like to have a survey done on a property so we know what we are spending our hard earned cash on. Unlike UK banks and building societies, French banks and building societies do not routinely ask for surveys to be completed on properties before issuing loans. Do not be discouraged by people who tell you there is no need to have a survey done.
It is advisable to have your survey conducted BEFORE you sign the compromis de vente. Although as a buyer you have your seven day cooling-off period, it’s not always possible to arrange a survey during that time. In other words you run the risk of forfeiting your deposit should you wish to pull out at a later date, after any survey results. However 'clauses suspensives' may give you recompense should you change your mind about going ahead with the sale after the survey.
The notaire is responsible for conducting all other searches on the property such as land boundaries, public rights of way, asbestos and termites. The seller is responsible for these costs.
Getting a Mortgage for your French Property
Once you’ve established your interest in purchasing a property in France, the next stage is to arrange your finances and potentially a mortgage in able to purchase one! Since you're likely to be buying your property in euros, there's an argument to arranging your mortgage in euros too; not least because European interest rates have historically been much lower than the UK, but it also means that you will be less volatile to currency fluctuations (link).
French banks such as Scciété Générale, Credit Agricole, Banque Populair des Alpes are just a few French banks that can offer good mortgage deals. In France, loans terms differ slightly as monthly repayment tend to be fixed at a set amount, with the length of the loan increasing or decreasing according to the base rate. Mortgages in France are usually much shorter than in the UK at between 7 and 15 years. As more British buy into the French market, banks are becoming more flexible and offering mortgages with a 25 year duration. In considering your costs with a French mortgage, you should be aware that French banks charge an ‘arrangement fee’ which usually amounts to about 1 per cent of the purchase price, and if you are taking out a French mortgage, you will be required to arrange a life assurance policy for security against the loan.
If France’s competitive interest rates are not enough to encourage you to splash out on a French mortgage, there are now several UK high street banks that are offering mortgages for properties overseas. HSBC, Barclays and Abbey International all offer a variety of mortgages with varying repayment periods from 5 to 25 years depending on your requirements. Barclays bank, for example, offers mortgages based on ‘off plan’ properties, or properties that need significant renovation and construction and leaseback (link) property. Barclays will however not lend on property with commercial or business motives such as restaurants, hotels and gîtes.
In the UK the amount you can borrow is generally determined by an ‘income multiple’. In France however, mortgage providers are subject to strict rules imposed by the ‘Banque de France’ which limits the maximum amount that people can spend on their mortgage each month. Under French law, the mortgage lender must consider affordability and whether the individual borrower can actually afford their property purchase. As a general rule, your monthly mortgage payments (plus any additional existing financial commitments such as existing mortgage payments, credit cards, life assurance policy payments, personal loan repayments and other on going contractual commitments) should not exceed one third of your gross monthly income, or annually, approximately 33 per cent of your annual gross income. To put all this in to context; if you were on an annual salary of £36,000 or £3,000 a month, with a UK monthly mortgage that cost £400 and a monthly car loan of £100, French law would restrict you being able to take out a French mortgage with monthly repayments in excess of £500.
If you have insufficient funding for a French mortgage perhaps as a result of the strict French law, there is always the possibility that you could re-mortgage your principal residence in the UK and use the released equity to buy your property in full and in cash. If you proceed with buying in cash, make sure you don't leave yourself vulnerable to foreign currency fluctuations as the exchange rate could potentially move against you whilst are finalising your completion details.
Which ever option you choose, it’s important to make assess your finances accordingly, take professional advice where necessary to ensure you are fully aware of your limitations so that you are not subject to any nasty surprise costs.
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