If you want to purchase high-value property in France, you will usually benefit from a private bank mortgage. Private banks can usually offer larger loan amounts than domestic lenders, and they are better able to cater to non-resident buyers and navigate the complications of Brexit, global income streams and assets, income generated via business interests and so on.
Understanding Assets Under Management Requirements
Today, to access a private bank mortgage, you will usually need to place assets under management (AUM). Most private banks offer interest-only mortgages, and placing AUM ensures that the institution can share risk with borrowers effectively because they stand to lose assets if they don’t keep up on interest payments on their mortgage. Placing AUM is sometimes seen as cumbersome because borrowers need to pledge significant capital with the bank, but it is generally very advantageous as the bank will actively manage the pledged assets with the aim of generating returns that cover the cost of the interest on the mortgage. They offer a variety of products and investment portfolios to deliver this catering to different risk appetites, including almost guaranteed returns, which can be very advantageous.
However, because banks usually require a minimum AUM amount to be placed with them, (around €1 million) regardless of the mortgage size and significantly more for larger loans – a requirement of 1/3 pledged as AUM of the purchase price is relatively common. This means that if you want to purchase a property in France for, for example, €1.2 million, placing €1 million in AUM won’t make sense given you’d tie up almost as much capital with the bank as you might if you just paid in cash.
For many borrowers, this means that French property purchases in the region of €800,000 - €1.7 million are difficult to finance with a mortgage: these loans are too large for domestic lenders, but too small to cover with a French mortgage that requires AUM placed with a private bank. AUM mortgages tend to be most advantageous if you are purchasing property of around €1.8 million or more. For anyone that wants to purchase a small but chic Parisian apartment, holiday flat on the Côte D’Azur or a small property, there are relatively few financing options available – until now.
Dry Lending Options
Recognising there is a gap in financing options for buyers that want to purchase properties in the region of €800,000 - €1.7 million, lenders that can offer French mortgages have brought an alternative dry lending product to market. Provided you meet compliance requirements with the lender’s criteria for a loan, you will usually be eligible for the product regardless of your nationality and country of residence – this is not a product for UK residents in exclusivity.
The product is a dry loan (requiring no AUM) while allowing borrowers to still access an interest-only mortgage. This is a key advantage as most dry loans are fully amortised: by the end of the loan term (usually 20-25 years) you will have repaid what you borrowed in full. A dry, interest-only loan can therefore be beneficial in the sense that you don’t have to place AUM but will also only pay interest on the loan. Interest-only mortgages can be advantageous if you will only hold the property for a few years, and if you want to keep your mortgage costs comparatively low. Because you are only paying off interest – rather than capital and interest as you would with a conventional mortgage – interest-only mortgages can be comparatively cheaper on a monthly basis.
Eligibility
To be eligible for this kind of loan, you will need to have a good income that supports the mortgage size you want and any other debt you have (i.e., a mortgage in your country of residence), have a solid financial background with a good asset base and a good credit history. This product is likely to be of particular interest if you are looking to purchase a property that costs between €800,000 - €1.7 million, on the basis that if you want a more significant French mortgage (€2 million or more) it may be worth exploring AUM options with private banks. However, if you want to explore dry lending, we will also be able to do so even if you are looking for a more significant mortgage.
The product is offered at around 70% loan-to-value (LTV), meaning you will need to put down around 30% deposit. If you are purchasing a main residence in France (rather than a holiday home or buy-to-let investment), we can usually negotiate LTV of up to 80%. The product is interest-only for five years.
This guide is for information and illustrative purposes only and nothing contained within should be construed as advice or a recommendation. Financing options available to you will depend on your requirements and circumstances at the time.
Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you.
Your home may be repossessed if you do not keep up repayments on your mortgage or other debts secured on it.
