A comparison of the pros and cons of borrowing in France versus financing from abroad

When purchasing property in France, one of the first questions international buyers face is whether to arrange financing locally through a French lender or to leverage resources from their home country. Both options are viable, but each carries distinct advantages and trade-offs. Understanding these differences can help you decide which path aligns best with your goals, tax considerations, and long-term strategy.

Borrowing in France

Pros

• Competitive fixed rates: French mortgages are well known for offering long-term fixed interest rates, often locked in for 15–25 years. This can provide excellent payment stability.

• Leverage in euros: Financing in the same currency as your asset eliminates exchange-rate risk on repayments and aligns debt with the property’s value.

• Local credibility: Having a French mortgage can make it easier to demonstrate residency ties or access certain tax treatments. It may also help with compliance on rental income reporting.

• Conservative underwriting: While sometimes viewed as strict, French lending standards can act as a safeguard, ensuring that your debt profile remains manageable.

Cons

• Lower loan-to-value ratios: Non-residents are typically offered 60–80% LTV, lower than what buyers may obtain at home.

• Documentation heavy: Expect thorough affordability checks, translated financial statements, and patience with a slower approval timeline.

• Upfront fees: Notary costs, bank fees, and insurance requirements can make setup costs higher compared to domestic borrowing.

Borrowing in Your Home Country

Pros

• Higher leverage potential: Depending on your country, lenders may extend higher LTV ratios, giving you more flexibility if you prefer to conserve cash.

• Streamlined process: Dealing with familiar banks in your own language can make the process quicker and less burdensome.

• Cross-collateralisation: In some cases, you can leverage existing assets or relationships at home to negotiate favourable terms.

Cons

• Currency mismatch: Borrowing in USD, GBP, or CHF to finance a euro-denominated property introduces FX risk. Exchange rate movements can make repayments more expensive over time.

• Variable rate exposure: In some markets, fixed-rate mortgages are shorter or less common, potentially leaving you more exposed to interest rate changes.

• Complex structuring: Tax reporting and interest deductibility may become more complicated if the debt is held outside of France.

Key Considerations

1. Exchange rate outlook: If you finance in your home currency, you take on the risk that the euro strengthens, raising your effective repayment cost.

2. Tax efficiency: Local vs. foreign borrowing can have different implications for deductibility and wealth tax exposure.

3. Investment horizon: If you plan to hold long term, the predictability of a French fixed-rate mortgage often outweighs the convenience of home-country borrowing.

4. Liquidity strategy: Consider whether you prefer to keep euro liquidity intact (favouring home financing) or align everything locally (favouring French financing).

Which Option is Right for You?

• Risk-averse, long-term holders often prefer French mortgages, thanks to fixed rates and euro alignment.

• Sophisticated, short-to-medium-term investors may opt for home country financing if they expect to refinance or exit within a few years.

• Diversifiers sometimes split exposure, taking partial debt in both jurisdictions to balance advantages.