Finance your purchase
There may be various reasons as to why you may wish to raise finance against the property you are purchasing in France, whether a principal residence, a second home, an investment property or a combination of the above.
When buying with a mortgage
Here are a few points to be aware of when buying with a mortgage.
Before viewing property
It is advisable to discuss financing options prior to viewing properties. Firstly, this will give you an idea of your budget and likely expenditure; secondly, providing information to lenders early will speed up the actual mortgage application process.
First contract stage
The grant of the mortgage should be a condition precedent (condition suspensive) of the first contract (compromis or acte sous-seing privé). If the mortgage is not granted, you can withdraw from the purchase with your deposit returned.
The following points should be noted:
- It is usually a condition that proof that the mortgage application has been made is to be provided within 30 days of the contract and you should ensure that you comply with this. The proof can be provided by means of an attestation from the lender to this effect. If you insert the condition into the contract and then do not make an application, the vendor could oppose the return of the deposit if you do not complete.
- There is usually a deadline for the grant of the mortgage in the first contract. This must be a minimum 30 days from the date of the contract. A realistic deadline is normally two to three months for a non-French resident. What occurs when this deadline is passed will depend in part on what the contract itself states but you should endeavour to respect it.
- The deadline can be extended with the agreement of the other party.
- You will need to provide much detailed information to the lender. For those in employment, banks will typically require your last three payslips, statement of bank accounts going back three months, the last tax return, full personal details of each borrower e.t.c. For those who are self-employed, the process is potentially more complex. This should be borne in mind in the context of what is stated above concerning deadlines.
- A life insurance policy to the benefit of the bank will in almost all cases be required. For people of a certain age or with health problems, enquiries should be made as early as possible to ensure that the obtaining of life insurance will not pose a problem. Certain borrowers will be required to undertake medical tests, ranging from a simple health check by your doctor to electro-cardiograms and blood tests (for those borrowing larger amounts or who have declared a health problem on the obligatory questionnaire de santé. It is often the life insurance that can lead to lengthy delays and it is often overlooked until the final stages. Note that it is possible to obtain life insurance from an insurer other than that proposed by the lender. However, this complicates the matter and you should organise this in advance to prevent delays.
The mortgage offer
You will receive a written mortgage offer once all the formalities have been completed and the bank agrees to lend. Following receipt of the offer, you legally cannot sign for ten clear days. This means that you will need to wait eleven days to accept the offer. The acceptance is to be sent back to the bank by registered post. Again, this should be remembered when organising the completion date. If sufficient time is not allowed, the sale simply cannot complete.
There will be a deed (acte authentique) for the mortgage, often included in the body of the completion deed (acte de vente). This specifies the terms and conditions of the lending and provides the bank with its security so that it can recover the debt in the event of failure to pay.
The bank liases with the notaire to approve a copy of the deed. Once this is done and, if applicable, the notaire has received your contribution towards the price, draw-down of the mortgage monies will be requested from the lender. Draw-down itself takes at least 24 hours so needs to be factored into the timetable.
If you cannot be present to sign the mortgage deed, a power of attorney can be organised so that the deed can be signed on your behalf. However, this power of attorney should be in authentic form which adds an extra level of complication to the legalisation of the power. For those resident in the UK, this means signature in front of a notary public or solicitor and then the apostille (stamp) inserted by the Foreign and Commonwealth Office or alternatively signature in front of a French consular representative with notaires powers. The power cannot be drafted until details of the mortgage are known from the mortgage offer meaning that it often arrives very late in the day.
The bank will in most cases require all those who are borrowing to be a party to the mortgage either as full borrowers or guarantors (cautions). When the application is made, it is therefore important to include all parties to the actual purchase. This can sometimes be overlooked and later rectification may lead to increased costs and delays (and even a refusal to lend if one of the parties is unsuitable). Banks can lend to SCIs (French property holding company) but the offer will normally need to be in the name of the SCI (the offer can usually only be made once the SCI is duly registered, therefore in the SCI/mortgage scenario, the SCI must come first).
The costs of an individual mortgage will need to be ascertained from the lender. However, you should note that in addition to other costs, the registration of the mortgage security attracts an additional fee charged by the notaire. This is typically 1% of the amount borrowed and it is usually not possible to calculate this until the end when the full details of the security required by the lender are known.
If you need further information in relation to finance, please do not hesitate to contact us. We will be pleased to provide you with the contact details of banks and brokers who are able to assist you.
Legal aspects to your purchase
First stage : Viewing the property
This will occur with either a representative of the estate agency or the vendor him or herself in the case of a direct purchase. You will normally be required to sign a ‘bon de visite’ at the time of the viewing if you have visited the property via the intermediary of an agent. This document attests to the fact that you viewed the property on that date and is essentially for the purposes of proving this fact if necessary.
When viewing, you may wish to take the opportunity to discuss various matters relating to the property and you may consider it prudent to take notes and photographs. Issues to discuss would include:
- drainage system;
- rights of way or other easements that may affect the property or that the property may benefit from;
- whether particular contents will be included in the purchase price or whether you can buy them separately;
- whether the property is sold with vacant possession. You should pay particular attention should you see that part of the property has livestock on it as rural tenancies (bail rural) can automatically transmit to new owners.
Second stage : The first contract
Those who have purchased property in certain countries will be all too aware of the fact that after an offer, several weeks can elapse before any binding agreement is entered into and then one party can pull out just before exchange of contracts with no recourse possible, thus leading to a loss of money and time. The French system seeks to avoid this possibility and it is this aspect which is fundamentally different from real estate purchases in some other countries.
In France, after an offer is made on a property and accepted, a compromis or sous-seing privé is drawn up. There are other forms of contract such as the promise to sell or purchase ('promesse de vente' or 'promesse d’achat') which function in a different manner and are most often encountered in the Paris region.
This contract can come very shortly after an offer, very occasionally even on the same day. It is extremely important because it lays down the terms and conditions of the purchase and governs the timetable, the checks to be made etc. Both parties will be tied into the purchase of the property subject to conditions that have to be met prior to completion taking place (conditions suspensives). If the conditions are met then the sale will occur. If they are not met, both parties will be free of any engagement and the deposit paid will be returned to the purchaser. If the conditions are met but one party decides not to go ahead, what occurs will normally be governed by the clause in the compromis in this respect (clause pénale) and one party can take legal action to force the other to respect his or her obligations. Generally if it is the purchaser who does not wish to proceed, he or she will lose the deposit and may be liable to pay additional compensation.
The following are types of conditions suspensives of a contract:
- that there is nothing in the town planning documentation that adversely affects the property or is likely to diminish its value e.g. a plan to build a TGV route across the garden;
- that there are no easements over the property that have not been revealed to the purchaser;
- that there is no mortgage over the property that cannot be paid off from the purchase price;
- that the purchaser obtains a mortgage;
- that outline planning permission is obtained for conversion or extension of the property.
There are also a number of other conditions that may be required depending upon the individual circumstances. Care should always be taken to ensure that these conditions are validly worded and offer as much protection as possible to the parties.
In relation to the asbestos, termite and lead reports, the general practice now is that these are drawn up and produced at the time of the first contract. Whether the reports are compulsory will depend upon the age of the property and, for termites, where it is situated geographically. In addition, there is now an energy performance report which is obligatory for most residential properties, as well as a natural and technological risks report and checks of any gas or electrical installations that date back more than 15 years. The cost of these reports is at the vendor's charge.
You will purchase the property in the condition that it is in upon the date of completion. The vendor, unless he or she is a professional in the real estate field, only owes you a guarantee for defects in certain narrow circumstances. It is very much a case of ‘caveat emptor’ or ‘buyer beware’.
In this context, it should be noted that surveys are not common practice in France, although they are gradually becoming more widely used. Should you require a survey then it is possible for one to be undertaken, though the person responsible for drafting the survey should of course be carefully chosen. The survey is almost always at the purchaser's charge. It is also advised that a survey should be completed prior to the cooling off period (referred to immediately below) to enable you to have the choice of not proceeding if you are not satisfied with the outcome. If the vendor agrees, it is possible to include a condition suspensive relating to the obtaining of the survey but this needs to be carefully worded to ensure that you are protected if the results are unsatisfactory. A general ‘subject to survey’ condition would not be sufficient.
You will benefit from a ten day cooling-off period at the first contract stage. The exact way this works will depend upon each case but usually the signed contract will be sent to you by recorded delivery letter. If you decide to withdraw during the cooling-off period, you do not have to provide a reason and any deposit paid must be returned within 21 days of the date of the withdrawal. The vendor does not benefit from a cooling-off period.
The deposit is also payable at this time. The deposit can be up to 10% of the purchase price and should be transferred directly to the notaire’s account or to the escrow account of an agent if there is such a facility. It will then be held until completion occurs and will be put towards the purchase price. It will not earn interest. The best means of paying the deposit is often by transfer to the notaire’s/agent’s bank account as there can be difficulties with cheques that are not drawn on a French bank account (even Euro cheques). Never pay cash as it can be impossible to prove payment and in the hands of an unscrupulous person it can disappear very quickly if a refund is claimed!
Third stage : The intermediary period
This is the period when the notaire will undertake his or her work in relation to the conveyancing process. This period only commences once the first contract has been finalised. The notaire is responsible for contacting the various administrative bodies to notify them of the sale, obtaining the necessary paperwork, commissioning the checks and searches etc.
The notaire will require copies of the following documents* from you:
- birth certificate
- marriage and any divorce certificate(s)
- any other certificates that may be relevant e.g. death certificate of a late spouse.
*Some notaires will require a translation of the original documents.
Fourth and last stage : Completion
In France, completion occurs by the signing of a deed (acte authentique). The signing of the acte authentique will be witnessed by the notaire. The acte should contain full information about the purchasing parties, the property, title to the property, declarations for the taxation authorities and the results of the various checks, searches and reports. It should also contain details of how the purchasers will own the property between them.
All parties should be present at the signing. If one party cannot be present then a power of attorney (procuration) will have to be drafted. The signing and witnessing of this document can be subject to particular rules and the exact requirements will depend upon the precise circumstances. For example, it may be necessary to sign the procuration in front of a lawyer in the home country and then have it legalised by the insertion of what is known as an 'apostille'.
Usually possession of the property is taken immediately after the acte has been signed and witnessed. This may not be the case if the property is rented out (on this point, particular care should be taken as tenants have extensive rights in France about which a purchaser should be fully aware before taking them on) or if it is the purchase of a new development of which the construction is still ongoing.
If the taking of possession is delayed for a reason such as to allow time for clearance of the property, it is possible to include a clause in the deed specifying a deadline for the handover of possession, with a sum withheld from the vendor until this is complied with and a daily penalty if the deadline is exceeded (known as a clause d’astreinte).
Payment of the purchase price and all the fees (minus any deposit that has already been paid) will be required in cleared funds before completion can occur. You should thus ensure that the payment is made in a timely fashion in a means acceptable to the notaire (often a direct bank transfer is the safest form of making the payment). Attention should be paid to the fact that delays can occur when transferring money to a notaire due to anti-money laundering regulations and you should preferably allow in the region of up to 5 working days to be certain that there is sufficient time for the funds to clear.
It is highly advisable to view the property prior to the completion to ensure that the vendor has respected his obligation to clear the property of furniture (unless it has been agreed otherwise), has not made any alterations to the property that were not agreed upon and generally to check that the property has not been damaged since the initial viewing. Also, you can ensure that any items that it was agreed should remain are still in the property. This is one way of safeguarding yourself against being the victim of one of the horror stories that many of us have heard about as immediate action can be taken in the event that the vendor has breached his or her obligations (for example by using a clause d’astreinte).
NB : The above outline does not constitute legal advice and is provided for purely informative purposes. Whenever you feel uncomfortable with a particular situation or deem it necessary to seek legal advice, as may also be the case with inheritance issues and taxation matters in addition to the purchasing procedure, we would encourage you to do so as a matter of course.