A best time As featured in the July/August 2009 edition of Your Mortgage magazine

Vive la France!

There's never been a better time to invest in French property, says Clare Nessling

Constant mention of terms like the economic downturn, the weak pound and the credit crunch over the last year or so may have put many people off the idea of property investment, but this needn't be the case, particularly if you're willing to look further afield. Despite the economic situation in the UK, now is in fact a very good time to think about buying abroad, even if the current strength of the euro makes it seem like a less attractive prospect in some locations. This is especially the case in France, where a well-chosen investment could generate a very attractive and safe return over the long term.

Firstly, French interest rates are at an historic low. At the time of writing, there are some rates on offer which are below three per cent, which makes a mortgage much more affordable. Secondly, property prices are lower and therefore more negotiable. Many sellers have dropped their prices to levels we’ve not seen for several years and there are definitely plenty of bargains to be had. And thirdly, there’s a larger choice of properties on offer and, as agents are less busy than they were at this time last year, they’re likely to give you much more attention.

Stable market

Despite the global economic crisis, the French mortgage market has remained pretty calm, primarily due to its financial system having been more cautious in the past. And, unlike Britain and the U.S., where obtaining a mortgage has become more difficult, things haven't changed much in France at all. Lending is very much based on affordability and only those people who can really take on the debt are allowed to do so. As France is in a relatively secure situation, it's actually possible to borrow up to 100 per cent of the value of your overseas property there. Obviously, there are certain restrictions on eligibility, but even for less restricted mortgages, it’s still pretty normal to be able to borrow between 70-85 per cent of the value of the property.

France has also not seen the same level of property price spikes that the U.S. and Britain have experienced in recent years, which means that the market has less room to fall. French homeowners buy houses to live in, and not primarily for investment, so prices have remained relatively more realistic. The country is not immune, however, to the decrease in demand for property brought about by the strength of the euro. This can have a disproportionate effect on some types of properties and in specific areas which are favoured by foreign investors.

Provence, for example, where there are many character and high-end properties, and the Dordogne, which has the highest density of British people in the country. This has led to some properties falling in price by more than the market average. But for prospective buyers, this can mean that there’s room for price negotiation.

Mortgage or cash?

If you’re paying for a French property with a mortgage, your exposure to currency fluctuations is much lower than if you’re paying by cash, as you will only have to exchange the money for your deposit and fees for now. Naturally, you’ll be required to meet the monthly mortgage repayments each month, and if you have a euro denominated mortgage, you’ll need to buy euros to do this. The foreign exchange companies can advise you on future rates and even allow you to enter into a forward transaction, which secures the rate at which you will be exchanging your pounds for euros now, but means you don’t have to make the exchange until a future date.

And here’s an interesting point - a mortgage could be a good idea, even if you thought you didn’t need one. If you’re lucky enough to be a cash buyer, it may be worth taking out a mortgage until the exchange rate gets better, at which point you can then pay it back.

But one of the biggest advantages of taking out a mortgage is that the lender, similar to those in the UK, will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation of the property takes place. Banks will also check other issues such as planning permissions and building licences.

Applying for a mortgage

There are many reasons why you should get your finance sorted out, even if you’ve not yet found a property. You need to give yourself time to research the mortgage market, so that you can find the best possible deals and decide on things like whether a euro or sterling mortgage will be more suitable for you.

Getting your finance organised also means you’ll know how much you can afford, and this is fundamentally important. An 'Approval in Principle' (AIP), will do just that – it will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search. And any seller, given a choice, will prefer a purchaser who can demonstrate that they have their finance in place, rather than somebody who has yet to consider how to fund their dream purchase. Buyers with an AIP could also be better placed to negotiate price.

You can usually obtain an AIP pretty quickly, in many cases within 24 hours. What form it takes depends on the individual lender or broker – for example, it could be a letter, an online confirmation document, or, in the case of Conti, a formal certificate. It’s tangible evidence that you can take along when house hunting and it can also lead to your application being fast tracked once you’ve chosen your dream home. It also costs nothing.

The process

The application process for a French mortgage takes an average of four to six weeks, at which stage you should have received an offer. But, occasionally, it can take several months - another reason to start the ball rolling as early as possible, so that you’re not hindered by any potential delays further down the line. It takes time to get all the necessary documents together, and you must be prepared for some strict deadlines attached to the mortgage and general property purchase.

For example, when you sign the initial sales contract for your French property, you typically have between 30 and 45 days to receive a confirmed mortgage offer or activate your clause suspensive – this is usually added to the sales contract and enables the buyer to withdraw from the purchase if a mortgage offer is not forthcoming within an agreed timescale. This may sound like plenty of time, but just one hitch can drag things out.

After the mortgage offer has been issued, there is also a legal cooling-off period of 10 days before you can accept it. This exists to protect the buyer and to ensure they’ve given full consideration to the mortgage agreement. If you’re working to a specific deadline, you need to factor this cooling-off period into your timescales.
Rental opportunities

There’s been a big rise in the number of overseas property owners renting out their homes out to holiday makers recently, primarily as a new source of revenue. France is no exception, as the French tend to holiday within their own country, especially when times are tough. This can be a great way of financing your second home, especially if the rental income is in euros (and you have a euro mortgage) as you won’t have to worry about exchanging currency to make your monthly repayments and any profit will grow in value when transferred back to the UK.

France really does offer the long term investor a wealth of opportunity. But anyone considering an overseas property purchase must take professional advice before committing to anything.

And finally, I would advise prospective buyers to be brave when it comes to negotiating price. With the economic climate as it is, people are keener to sell and therefore more likely to be receptive to offers lower than the asking price. It’s a buyers’ market!

Clare Nessling is operations director at Conti, the overseas mortgage specialist

Call 01273 772811 or visit www.mortgagesoverseas.com