In our webinars on international property loans, we receive many questions from non-residents around the world. We have compiled the answers to some frequently asked questions below.
Are you an expatriate or non-resident wishing to buy a property in France with the help of a loan? This article is for you.
Are loan rates the same for non-residents as for French residents?
For an equivalent application (income/expenses), the difference in interest rates between a French applicant resident in France and an expatriate ranges between 0.25% and 0.5%.
Currently, the rates we can obtain for non-residents are between 1.25% and 1.50% over 20 years and between 1.10% and 1.30% over 15 years. By way of comparison, in November 2021, the Observatoire CSA Crédit Logement interest rate survey showed an average rate of 1.06% across all maturities (0.99% over 20 years and 0.86% over 15 years).
What explains this difference? Over the past several years, historically low lending rates have increased competition between banks and significantly reduced banks’ margins on property loans. They now see property loans as a loss leader enabling them to attract new customers. Once borrowers become customers of the bank, they will use more profitable banking products such as payment cards, investments, etc. Non-residents are less likely to use this type of banking products. This is one of the reasons why the interest rates offered to expatriates are slightly higher than for residents.
It should also be noted that interest rates provided on comparison websites or in the press are often for loans granted for the purchase of the borrower’s main home. However, non-residents tend to make rental investments, and the implications for banks are not the same. The same applies to loan interest rates.
Does the 35% debt-to-income ratio set in the new HCSF regulation apply regardless of the level of income?
Yes. Even if non-residents often have high incomes, banks make no exceptions in this area. The HCSF (High Council for Financial Stability) rules governing property loans, which were previously just recommendations, become mandatory from 1 January 2022. As a reminder, they impose a debt-to-income ratio of less than 35% (including insurance) and a maximum loan term of 25 years (or 27 in some cases). French banks may grant exemptions for 20% of their loan production, provided that this makes it possible to finance 80% of main homes, ideally for first-time home buyers.
This rule therefore applies to all borrowers, both residents and non-residents, regardless of their income.
Can expatriates still obtain a 110% loan-to-value ratio?
Banks are stricter than ever regarding the deposit needed to obtain a home loan for non-residents. A deposit of at least 30% of the purchase price excluding fees has become the norm. Loan-to-value ratios of 110% are therefore no longer possible.
Up to what age can buyers apply for a loan?
Ideally, it is best to take out an expatriate property loan before the age of 60 and in general before retirement. From 54 years old, banks apply a 60% weighting to your income when calculating how much you can borrow. This weighting is applied to anticipate the fall in your income on retirement.
From age 50 to 55, property loans are granted for shorter periods of up to 15 years.
For borrowers over 55 years old, property loans may be granted to expatriates/non-residents on a case-by-case basis.
Can you finance your purchase through a foreign bank?
Yes, this is possible. However, foreign banks or banks in your country of residence cannot take any guarantees on property located in France (except for banks in neighbouring countries such as Belgium or Switzerland). This can be a problem because these banks will often require a mortgage guarantee on a property in your country of residence or your savings to finance an apartment or a house in France. The terms and conditions available abroad are often less attractive and the consumer code provides less protection than in France.
Can you apply to the bank of your choice?
Our brokers for non-residents will consider your preferred banks. However, fewer banks are granting home loans to expatriates due to the significant constraints involved (translation of supporting documents, knowledge of the regulatory environment of the country of residence, currency controls, etc.). As such, your preferred bank may not lend to non-tax resident persons. It is therefore not always possible to choose. By going through an international mortgage broker, you will have access to several banks. You will be able to choose the most suitable offer and bank for you.
Do you need a bank account in France before buying a property?
It is not essential to have a bank account in France before starting to look for a loan. Once you accept a loan offer, you will open at least one account with the selected bank so that the monthly loan repayments can be debited from it.
Please note that even though you do not need to have an account in France before receiving a loan offer, you must make sure you can easily transfer your deposit into a French account.
Does the non-resident’s nationality play a role?
Yes, of course, the non-resident’s nationality is decisive in obtaining an international property loan. For example, some banks are refusing to lend to British non-residents since Brexit. Other rules exclude applications from US non-residents due to FATCA regulations.
How easy it is to obtain an agreement in principle for a property loan in France will depend on your nationality.