Author: Blue Sky

French Lifetime mortgage : an innovative financing solution for borrowers over 65

Lifetime mortgage

In France, lifetime mortgages are known as Prêts Viagers Hypothécaires. A French lifetime mortgage is a long-term loan secured on a French property.  Unlike a regular mortgage loan, you don’t make any monthly repayments as the interest builds up on your loan each year. A Lifetime mortgage does not need to be repaid before you pass away or before you decide to sell your property. A lifetime mortgage is a way of taking out cash from the value of your home, without having to move.

 

Who qualifies for a lifetime mortgage?

To be eligible to release equity with a lifetime mortgage, you must:

  • Be over the age of 65 and under the age of 85
  • Own a residential property in France worth at least €200,000
  • Want to release at least €70,000
  • Be a full time resident in France
  • Evidence a minimum level of income

 

Some typical reasons for releasing equity with a lifetime mortgage might be to:

  • Adapt your home, so you can continue to live independently
  • Renovate or refurnish parts of your home
  • Pay one-off private medical bills, or receive ongoing care at home
  • Help children and grandchildren with house deposits, weddings or other major events
  • Pay off an outstanding mortgage, including the shortfall on an interest-only mortgage
  • Fund leisure interests, a new car, a holiday, or visiting relatives abroad

 

How much can I borrow ?

The maximum loan amount depends on the property value and on the age of the borrowers. Typically, it is possible to borrow between 40% and 50% of the appraised value of your property.

 

When is the loan repaid ?

A Prêt Viager Hypothécaire would end:

  • If ALL borrowers were to pass away
  • If the mortgaged property was to be sold
  • If the borrower decided to repay the loan early

 

What happens with my lifetime mortgage when I pass away?

A lifetime mortgage is designed to be paid in full when you (or you and your partner, if held jointly), pass away.

The people who deal with your estate will be given a reasonable length of time to repay the loan, which is currently 12 months.

If the value of both the loan and the interest is in excess of the value of the house, then the debt repayment is restricted to the value of the house and to no more.

 

Feel free to get in touch for further information.

Sale of a French property by a Non-Resident : Who needs to appoint a Fiscal Representative ?

Fiscal representation

Specific rules and regulations defining the requirement to appoint a Fiscal Representative when selling a French property are governed by CGI, article 244 bis A

In summary, the sale by a non-resident individual of a real estate property located in France requires the appointment of a tax representative, except under the scenarios for dispensation set out below.

Three scenarios allow for automatic dispensation from appointing a tax representative:

• When the seller lives, is based or is incorporated in an EU Member State or in another country party to the Agreement on the European Economic Area (EEA) which has signed a mutual administrative assistance agreement with France (Iceland and Norway)

• For sales of €150,000 or less. This upper limit is assessed for each seller.

• For sales allowing for capital gains exemption both in terms of income tax and social levies owing to the duration of ownership of the property (22 years for income tax and 30 years for social levies)

With effect from 1st January 2021 and due to BREXIT, owners of French properties residing in the UK will no longer be exempt. As such, all UK residents are now required to appoint a Fiscal Representative when selling a French property. The requirement to appoint a Fiscal Representative applies regardless of whether Capital Gains have occurred.

 

Who can act as a Fiscal Representative ?

The following entities and individuals are authorised to act as tax representatives:
• A company or organisation already permanently accredited by the tax authorities
• Banks and credit institutions carrying on their business activity in France
• The buyer of the property if he is resident of France for tax purposes
• Or any other person who is resident of France for tax purposes, except notaries and lawyers. In the latter category, the representative must be accredited by the tax authorities.

 

Who and when to appoint a Fiscal Representative ? 

Accredited private companies authorised to act as Fiscal representatives are frequently appointed by the French notary at the time the sale takes place. It is not uncommon for the seller not to be consulted as French notaries often request the assistance of a Fiscal Representative company they are used to working with, without any necessarily operating a tender process.

 

What is the role of a Fiscal Representative ?

In essence, the role of a fiscal representative is to calculate the gain or the loss in value related to the sale of the property. The Tax agent is in charge of all the fiscal procedures including establishing and signing the forms required by the French tax administration.

A fiscal representative effectively guarantees the accuracy of the Capital Gains calculation and acts as a guarantor should the calculation be incorrect and if penalties are applied.

Because of Fiscal representatives are liable for any incorrect tax assessment, private companies tend to have a conservative approach when calculating Capital Gains Tax. This typically comes in the form of expenses or renovation costs not being recognised as items deductible in the CGT calculation.

 

What is the cost of a Fiscal Representative ?

Private companies accredited by the tax authorities will charge a fee ranging between 0.3% and 1% of the selling price of the property.

Individuals authorised by the French tax administration to act as Tax Representatives for a specific transaction can proceed free of charge.

 

Our advice is quite simply that sellers should consider the appointment of a Fiscal Representative and the calculation of Capital Gains Tax very carefully. As much as 1% of the sale price as well as actual Capital Gain Tax liabilities are at stake.

It is our recommendation that the following steps should be followed :

    • Determine whether any tax exemptions apply to you
    • Assess deductible expenses, reliefs and default fees to calculate your Capital Gains tax liability
    • Search the market and compare options before appointing a Fiscal Representative

 

Please get in touch if you require further information or require assistance with this process.

 

Sourcing the right Term Life Insurance contract for your French mortgage

Term Life Insurance

The majority of French lenders require that a Life and permanent disability insurance contract is arranged alongside a mortgage. This is a standard risk requirement and the policy must be underwritten by a French provider.

As an authorised mortgage and insurance broker, Bluesky Finance work with a large panel of insurance companies. We can source and arrange insurance policies which meet both the lenders’ requirements and your requirements.

We can arrange Term Life insurance policies :

– For individuals residing outside Europe, including the USA, South America, Africa or the Middle-East

– For borrowers aged 70 and above

– With a simple Health Questionnaire for amounts up to €1,250,000 for borrowers aged up to 45

– With a simple Health Questionnaire for amounts up to €800,000 for borrowers aged up to 55

– For policies requiring medical underwriting, all tests can be undertaken in your country of residence

French Mortgage lending in a post BREXIT world

It’s early 2021, we are all impacted by lockdowns and strict travel restrictions. Against all odds, Non-Resident buyers are still active in the French property market. Here is a brief overview of mortgage lending in a post BREXIT world :

 

  • Overall, few changes as a result of BREXIT but some new pitfalls to be mindful of… The end of the EU financial passporting system has become a significant hurdle for UK intermediaries. EU lenders have taken steps to avoid being regulated by the UK FCA. More hoops to jump for British residents but nothing that can’t be overcome.

 

  • Many individuals can’t get what they are looking for… Large disconnects between expectations and reality… Sadly, lending propositions do not meet demand

 

  • Most lenders and insurance companies are able to accommodate a full remote origination process (No travel required). The most challenging aspect of processing a case remotely is often related with the mortgage Life Insurance application process. Undertaking medicals required by insurance companies can be challenging in periods of lockdowns and over-stretched health resources.

 

  • Interest rates remain extremely low. No pricing for risk…. You are either in or out.

 

  • Strict lending underwriting criteria… strong emphasis on affordability

 

  • “Escape to the Château” may be fun to watch but won’t get lenders excited…. Gîtes, Fishing lakes, wedding venues etc even with the most robust business plans will have to be self funded

 

  • Interest-only plans without collateral available up to 75% / 80% LTV

 

  • Capital repayment plans available up to 85% LTV

 

  • Duration up to 20 years. 25 years at a stretch

 

  • Limited appetite for small amounts (<€150k), complex deals and non salaried applicants

 

  • Lower rates available with Assets Under Management at ~60% LTV

 

  • Lending to US persons still impacted by FATCA but some interesting propositions available

 

  • Service is “hit and miss” and generally slow …. Depends on who you know. People trump processes…

 

  • Private bank lending a good option for assets >€1m…. better service & expertise

 

Bluesky Finance is a France based independent specialist mortgage broker. We search and arrange high-quality mortgage solutions for international buyers. contact@bluesky-finance.com + 33 (0) 9 82 56 61 57 More information

Everything you need to know about changes to French Wealth Tax

New rules governing French wealth tax came into effect on 1st January 2018. In this post, we explain what the changes to the law mean if you own a French property or if you are planning to acquire one.

Prior to the changes, French wealth tax (ISF) was assessed on all assets owned by the taxpayer when net taxable assets exceeded a threshold of €1,300,000. The basis for the wealth tax included worldwide assets for taxpayers domiciled in France and real estate assets located in France for non-resident taxpayers.

With effect from 1st January 2018,  a new real estate wealth tax scheme (“Impôt sur la Fortune Immobilière” – IFI), is assessed only on the real estate owned by the taxpayer to the extent that the value of the taxpayer’s real estate net assets exceeds a threshold of €1.3 million.

All other assets (especially financial assets) are no longer subject to wealth tax. The five year exemption for property held outside of France for new French residents continues. As with individuals domiciled outside of France, those who have not been domiciled in France during the five years preceding their arrival on the French territory will only be taxed on their French real estate assets, until 31 December of the fifth year following the year of their arrival in France.

The new IFI scheme is governed by the same taxation scale as the former ISF scheme and similar rules as for the French wealth tax apply. More specifically:

  • Real estate used in a trade or business are excluded.
  • A 30% discount on the value of the taxpayer’s primary residence continues
  • Mortgage debts related to taxable real estate assets can continue to reduce the wealth tax base

 Mortgage loans as a lever to reduce French Wealth tax

With regards the deduction of mortgage loans in the wealth tax base, new rules specify that interest-only loans will be governed by similar rules as amortising loans. This rule also applies to existing interest-only loans.

For example, a 10 year €100,000 interest-only loan arranged on 1st Jan 2016  will be assessed as follows : for the purpose of reducing the 2018 wealth tax base : €100K – (€100K x 2) / 10 = €80K

French real estate assets with a gross value exceeding €5 million will also be subject to a deduction cap. In practice, when the mortgage outstanding balance exceeds 60% of the property value, the maximum amount of mortgage debt that can be used to reduce the wealth tax base is capped at 50% of the “excess” over and above the 60% cap.

For example, assuming a property worth €6 million with a €4 million mortgage :

60% cap : €6m x 60% = €3.6 m. Excess over the cap : €4m – €3.6m = 400K€.  50% of the excess : 200K€. total deduction from the wealth tax base: €3.8m

 As a reminder, assuming the €1.3 million threshold is met, tax bands applicable to net taxable real estate assets are :

Real estate value under €800,000 – 0% tax rate

Real estate value €800,001 to €1,300,000 – 0.5% tax rate

Real estate value €1,300,001 to €2,570,000 – 0.7% tax rate

Real estate value €2,570,001 to €5,000,000 – 1% tax rate

Real estate value €5,000,001 to €10,000,000 – 1.25% tax rate

Real estate value €10,000,000 upwards – 1.5% tax rate

 

Annual wealth tax bill applicable to unencumbered French real estate assets would be as follows :

 

Net taxable assets Annual tax due
1 300 000 € 2 500 €
2 000 000 € 7 400 €
3 000 000 € 15 690 €
4 000 000 € 25 690 €
5 000 000 € 35 690 €

 

 

 

Early redemption penalties on French mortgages

Most French mortgages come with early repayment fees or penalties also know as ERC. If you have an existing French mortgage and are contemplating remortgaging in France, there are several things you need to be aware of .
Firstly ERCs are capped by law and cannot exceed the lower of 3% of the outstanding mortgage amount or the equivalent of interests paid over a 6 months period.
Besides, under certain circumstances, French lenders are not permitted to charge ERCs. More specifically, ERCs cannot be applied to French mortgages advanced after 1 July 1999 if the redemption of the French mortgage is due to :

1. the sale of the French property and the sale of the french property is correlated with a change of employment
2. the death of the borrower or co-borrower
3. unemployment of one of the borrowers

For more information

How to secure the best mortgage deal in France?

Here are a few simple tips to get the best mortgage deal in France. The following recommendations particularly apply to international buyers who can have access to a wide range of mortgage products when buying or refinancing in France.

1. If you can afford the monthly repayments, select a shorter duration for your mortgage contract. In France, the shorter the duration, the lower the mortgage rate.

2. Always factor the cost of the life insurance premium. Lenders will not advance euro denominated mortgages unless a life insurance has been assigned to them. Mortgage insurance is an important cost component of a French mortgage and can represent as much as 25% of the borrowing cost. So make sure to include the life insurance element and don’t simply focus on mortgage rates.

3. Do not go straight to specialist lenders catering for international buyers. They deliver a good service but it can come at a premium cost. Shop around and compare.

4. Negotiate ! In France, fees and mortgage rates are not always set in stone. Bargaining is common place so make sure to challenge the lender. If you are not comfortable pushing back, get a broker to do the negotiating on your behalf.

5. It’s location, location, location but not rates, rates. To get the best mortgage deal, always include fees (completion fee, early redemption fee) and the cost of the guarantee that the lender will require. Fixed fees can make a big difference to the overall cost of a French mortgage.

6. If you want to have access to the whole of the French mortgage market, use an authorised French broker. Make sure that the mortgage broker is regulated to arrange mortgage contracts in France and make sure that the broker can also arrange life insurance contracts. A French mortgage broker has a best advice duty and cannot charge fees before completion.

For further information, make sure to contact us.