Mortgages and second mortgages on PROPERTY FOR SALE in FRANCE
Mortgage or Second Mortgage on PROPERTY FOR SALE in FRANCE
Currency Risk
A second mortgage on your existing home makes the whole process more straightforward, you are offered a higher degree of protection against currency fluctuation.
If you live outside the Euro zone then your main currency risk with remortgaging is at the time you purchase the property, something you can insure against by organising a forward contract at a fixed rate.
If you think your currency is going to strengthen against the Euro then you would be better off getting a spot rate, and then transfer the funds in time for completion.
Once purchased, with re-mortgaging you have the same monthly payment, irrespective of changes in currency rates.
Only if and when you decide to sell the property does currency risk later become an issue. Of course, it could be a big issue if you do decide to sell, and the currency has gone against you.
Tax relief on Mortgages
Mortgage tax relief is available on the purchase of a main home, for the first 5 years.
The relief is granted at the rate of 40% of interest incurred in the first year, followed by 20% of interest paid for the remaining four years.
If you do not pay income tax in France then you would be granted a tax credit, in an equivalent sum to that you would otherwise have received in tax relief. In other words, the taxman would send you a cheque!
Secondly, loan interest on a property is tax deductible against rental income.
Finally, debt on a property is deductible against liability to inheritance tax.
Mortgage Interest Rates
The level of interest rates in France has historically been well below rates in the UK.
The significance of this difference should not be underestimated.
On a loan of €100,000, with an interest rate gap of 2%, you might expect to pay around £1000-€1500 a year less with a French mortgage.
Over 20 years, therefore, you are going to be paying a lot more in interest payments through remortgaging than would be the case if you took out a mortgage on your French property.
On the downside, you need to weigh this saving with the greater currency risk that you face. There is no magic solution.
Most mortgages in France are granted on a fixed rate basis. You can read more about mortgage interest rates in France, and the choice between a fixed or variable mortgage rate, in our later pages on French mortgage lending terms, which you can find here.
