September 2015 – French Mortgage Transaction of the Month

September’s transaction of the month is on a new-build ski apartment in Chatel, with the buyer taking a loan of €450,000 (almost on the nose of our average loan amount so far this year).

The rate taken was the market leading fixed rate for a 20-year duration loan – 2.70%. The loan to value ratio was around 80%. The apartment enjoys a very good location in this increasingly popular resort and as such the buyer intends to rent it out for as much of the year as possible.

Of course, it’s worth repeating here that whilst the property will certainly generate an income which will be put towards the mortgage payments, technically French banks to not offer buy-to-let mortgages as you would find in the UK for example. Rental income is not taken into account for affordability, instead it is just your normal criteria over assets, earnings, etc that are taken into account.

By letting the property out and agreeing to provide a handful of basic rental services such as linen changing, key holding and breakfast provision, there is a chance that the client will be able to recoup the 20% VAT as the property is contributing to the tourism industry of that resort. Such a rebate would represent a considerable saving, although the VAT rebate is pro-rata over 20 years, which means should the client stop renting the property out after 5 years, then 15% would need to be paid back.