Category: General

Principles applicable in French property law go back to the declaration of human and citizens’ rights in 1789 “the right to property is an inviolable and sacred right, that no one can be deprived of …”

In addition to protecting property owners, the French legal system has, over the years, added a number of laws designed to protect the buyer and, as such, creates a very safe and heavily regulated purchasing environment.

Initial Stages

After a property has been found and a purchase price has been agreed, the vendor and the buyer must sign an initial contract – known locally as the Compromis de Vente. In some cases, this document will be a standard contract held by a French estate agent; however, it can also be drawn up by an official of the government – referred to in France as a Notaire.

Once the Compromis de Vente has been signed by all parties, a seven-day cooling-off period begins. During this seven-day period, the buyer has the opportunity to withdraw from the purchase. After the cooling-off period has ended, the transaction becomes legally binding, and significant penalties are payable if either party should withdraw from the sale.

A conditional clause can be added to the Compromis de Vente stating that the purchase is subject to the mortgage application be approved by at least one lender.

A deposit of at least ten percent of the purchase price will normally be required – although it will remain in escrow with the notaire until the transaction completes successfully. In the event that a mortgage application is not approved, the compromis de vente becomes void and the deposit is refunded.

At this point you may wish to appoint your own notary to oversee all aspects of the transaction.
The appointment of your own notary does not incur any extra costs.

Role of the Notaire

The involvement of a notaire in real estate transactions is a legal requirement in France. He is a public official who has a monopoly over conveyancing. One notaire can be appointed to oversee the entire transaction; however, both the vendor and the buyer can appoint their own. The notaire will oversee all aspects of the sale to ensure all applicable laws are adhered to and that all taxes are paid. The notarial profession is strictly controlled by statute owing to the delegation of public authority. The profession is also monitored closely by its peers and if necessary by the judicial authorities.

A notaire will typically charge between six and eight percent for their services, and all fees are payable on completion of the sale. For the most part, notary fees are taxes set by the Government.

Conveyancing process

The average timescale for completion of the various searches and legal checks – undertaken by the notaire – is three to four months. A meeting will then take place between the buyer and vendor – or parties nominated to represent them by proxy. The final deed of sale – known in France as the Acte de Vente – will be signed during this meeting, and the property’s ownership will finally pass to the buyer.

The French housing market is expected to strengthen further in 2018. Strong demand for houses in France is buoyed by low interest rates. Find out more about the latest trends in French property prices.

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As your mortgage instalments will be debited from an account by Direct debit, you will need to open an account with a bank in France. Bluesky Finance can help you find a suitable retail bank and the right package for you.

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Tax Overview

Capital gains tax – impôt sur les plus values – is a tax payable in France on gains arising from the sale of land or properties. Capital gains are calculated as the difference between the sale price and the purchase price or the value that was reported when the property was received as a gift or by inheritance. Rules governing capital gains tax vary in accordance with the sale price, the nature of the asset, the country of residence of the seller and how long the asset has been held. Capital gains made on the sale of assets are exempt when the sale price is under €15,000. Sale of a principal residences are totally exempt, regardless of how long the property had been owned. Capital gains achieved on properties sold when the property has been owned for 30 years or more are also exempt. In other cases, the vendor is liable to pay tax and social security charges (CSG, CRSG) on the net capital gains.

To calculate the amount of net capital gains, Gross Capital Gains can be adjusted by the following factors:

 Deductible expenses

Home improvement expenses (extension, double glazing, new kitchen etc) are deductible from the sale price as long as the vendor has kept invoices and proofs of payments and has not already deducted these expenses for other purposes. Alternatively, the vendor may use a flat rate deduction equal to 15% of the purchase price. To be eligible, the vendor must have owned the property for at least five years. Sale fees can also be deducted from the sale price. These may include the costs incurred to complete the mandatory certificates and surveys (eg Energy Performance Certificate) as well as the fees the fiscal representative may charge.

 Purchase fees

Fees including stamp duties, notary and agent fees which were incurred when buying the property can be added to the purchase price. By default a flat rate of 7.5% of the purchase price can be used.

 Taper relief

This is effectively an allowance for the duration of ownership.

Taper relief for tax purposes:

6% for the sixth to the 21st year of ownership;

4% for the 22nd year

Taper relief for social charges purposes:

1.65% for the sixth to the 21st year

1.60 % for the 22nd year

9% for the 23rd to the 30th year

Tax and social security rates :

Income tax rate applicable to Capital Gains Tax stands at 19%

In addition, social charges of 17.2% apply to Capital Gains Tax.

Additional taxes are also levied when net Capital Gains are greater than €50,000. Additional taxes payable are calculated as follows:

With French mortgage rates dropping to all-time lows, now can seem the perfect time to remortgage. But before you start the process of looking for bank statements and pay slips, here are a few guidelines to help you assess whether it makes sense to refinance the loan you took out to buy your French home.

1. Remortgage if you can minimise your total cost of borrowing. Switching mortgage provider in France is not as smooth as it can be in the UK. In addition to the administrative process, refinancing involves fixed and variable fees. All in all, legal fees, early repayment charges and administrative costs will account for about 5% of the loan amount. It is therefore important to look beyond interest rates.
As a rule of thumb, re-mortgaging will make sense and will save you money if:
– The rate you are currently on is 1% higher than the new rate you are offered;
– You are closer to the beginning than the end of your existing mortgage loan;
– Your outstanding balance is higher than €50,000.
Finally, as lenders require mortgage protection insurance, you will need to consider the cost of a new policy, particularly if you have new or pre-existing medical conditions.
But it can be worth it ! A borrower who took out 20 year €200,000 mortgage at a rate of 4% in 2011 would save €9.182, net of fees, if he remortgaged on a 2.9% deal without increasing the term.

2. Remortgage to raise capital If you have equity in your home or don’t have a French mortgage, it may be worth contemplating taking cash out in addition to re-mortgaging. Borrowing against your French property can be a very effective way of raising capital, financing renovation work, or repaying more expensive debts either in France or in the UK.

3. Remortgage to switch to a fixed rate loan
If you intend to keep your French property for the years to come, a low rate environment can be a perfect time to move from a tracker to a long term fixed rate mortgage. Similarly, if you are on an interest only deal, it may be worth remortgaging to avoid early repayment fees and to anticipate the amortization period.

In any case, an authorised mortgage broker will be able to assist you with exploring options and recommend a product suitable for your needs.