Financing Your Home as an Expat in Basque Country
For expats, finding a home in Basque Country area can sometimes be a tricky endeavor, even without considering how the financing will work abroad. Understanding the best way to finance an international project is equally important to the home choice. Incorrect financing or poor planning could add tens of thousands of euros to the final purchasing price, or worse, it could break the sale altogether. So, it's best to understand at least the basics and also work with financial professionals who are reactive and trustworthy.
This year was particularly interesting in terms of expat clientele, as I saw a large influx of international clients once Covid travel restrictions were loosened at the borders. Many expat clients with projects in 2020 could not realize their dreams as borders were closed and visits were impossible. Furthermore, the 2020 lockdowns fuelled many people's desires to act on their dreams of moving abroad or a secondary home near the ocean. At the beginning of 2022, the foreign demand for properties remains strong.
As I work primarily in the luxury sector of real estate here in Basque Country, I want to provide a complete service for my clients by going further than what most agents would provide in terms of service. Therefore, over the years, I have built a network of service providers specialized in foreign buyers to help them with the financial, legal, and insurance needs that may arise. One of my trusted contacts is Thierry Jean, an HNW international mortgage broker. In writing this blog, I consulted Thierry for his expertise on how financing works for expats in France. He specializes in foreign buyers purchasing in France (and sometimes abroad). From retail to Private Banks, he has a wide range of financial partners in France and Europe to help finance his clients all around the World,
So, I will start with the basics:
WHO can get a mortgage in France?
There are no restrictions on foreigners buying property in France; you do not need a visa or residence permit.
Furthermore, IT IS POSSIBLE for foreigners to obtain a French mortgage (but only under certain conditions). Certain specialized lenders and brokers are available to English-speaking clients.
Even though the UK has now officially left the EU, UK citizens can still purchase property in France as a non-EU citizen. You can even rent it out if you want to.
You do not need to be working in France to obtain a mortgage; specific lenders will consider your incomes from abroad.
Depending on assets and profiles, older borrowers can still find creative solutions to finance a property. However, it may be tricky for traditional banks to finance them.
WHAT types of financing can be found in France?
There are plenty of classic and creative solutions available from various lenders. There are interest-only solutions, conventional loans, fixed-rate and variable-rate French mortgages, bridge loans, and more. The mortgage market is mature and diverse in France.
In some cases, the client can leverage a percentage of his stock portfolio by pledging it to raise capital.
For higher budgets, private banks can offer many more profitable and flexible solutions. Usually, the entry ticket for these institutions is above the 1 million euro mark. The focus here will be on the relationship that will be developed with the bank and how they can work with you in the future. The solutions are focused on a high leverage effect, therefore being more creative and much more financially interesting for the borrower.
WHY should you get a French mortgage? (even if you have the cash to buy the property in full)
To take advantage of the historically low-interest rates in France. France has one of the lowest mortgage rates in the World. According to the website CAFPI , 15-year mortgage rates are an incredible 0.56%. With high inflation these days, the money is essentially free.
Use the "leverage effect" at your advantage, borrow money that belongs to the bank to purchase a property that will be yours.
To take advantage of the arbitrage effect of borrowing at low-interest rates and investing in potentially higher returns. The basic idea is to keep your personal cash invested, generating a higher return than what it costs you in the mortgage's interest. For example, suppose you had a mortgage rate at 1% (for most non-residents, the average rate is around 1.50% over 20 years) and an investment account paying you a 5% return. In that case, you are essentially making a net 4% return on the money invested, which only gets exponentially better with time. Loans cost less interest every month, while savings do the contrary. And hopefully, your property will increase in value as well, increasing the returns. This is the well-known effect of financial leverage.
In some cases, you can keep your cash in your home country, saving you on exchange rate fees and bank transfer fees. It also limits your risk of currency fluctuations.
Life insurance of the mortgage. Most mortgages require insurance that if the borrower passes away, the mortgage is paid in full. This is extra layer of security that purchasing with cash does not provide, especially for families and couples.
To avoid paying some or all of the IFI tax (Impôts sur la Fortune Immobilière), better known as the French real estate wealth tax. This applies to anyone with a global real estate asset net worth above 1.3 million euros. A mortgage will help reduce or eliminate this tax burden by lowering the asset's taxable base.
Financing a property is often one of the most significant financial decisions in a person's life. Having financed and purchased properties in France myself, I can attest to how stressful it can be. However, having a team of trusted professionals working with you will make the process much less demanding.
If you have any questions about a move to France or financing a property, please get in touch to discuss.
07 78 10 04 86 alex.gaines@prestant.com
