Here are the pros and cons of purchasing with a French Mortgage versus UK Equity Release.
French Mortgage Pros:
Preserve Your Cash
It is very difficult to obtain a French equity release mortgage. If there is a future risk that you will need to access the cash tied up in your French house, keeping your cash and taking a French mortgage is a safer financial strategy.
Plan for the Future
Interest rates in the UK may be low now but they haven’t always been whilst France has a history of low rates generally 1.5 – 2% cheaper than in the UK and now interest rates are at a historical low. Most of the mortgages in France are long term fixed rates meaning that you are able to tie into a rate for the entire duration of the mortgage, typically around 3.8% for 20 years currently. This allows for financial planning, offers peace of mind and security.
Minimise Exchange Rate Risk
Keep your borrowing in the same currency as the asset to protect yourself against future exchange rate movements. Quite simply if your asset and liability are matched in the same currency you can never be exposed to the asset being worth less than the borrowing due to unpredictable future FX movements. If you would like to speak to us about FX planning click here.
Interest paid on your French loan can be made tax deductible against French rental income whereas interest paid on UK borrowing will not be allowable.
Additionally, a French mortgage can be set against the value of your French property and can bring your net assests in France below the French wealth tax threshold.
Purchase Deposit Protection
The French Clause Suspensive in the Compromis de Vente protects you against loosing your deposit if you are unable to secure a mortgage. A Clause Suspensive cannot normally be used if the mortgage application is being made outside France.
Additional Peace of Mind
French banks will carry out an independent valuation to ensure that you are buying at a fair market price. They will also check that the property is free from all charges and encumberances and is thus safe to purchase.
UK Equity Release Pros:
May Be Quicker
If your existing lender is prepared to top up your existing mortgage with cash the time to obtain funds may be quicker.
May Be Less Restrictive
UK lenders have historically (remember the Northern Rock collapse) taken higher lending risks so it is possible that you may qualify for a larger UK equity release loan than for a French mortgage. However you should remember that, in financial markets, risk is always priced so the French mortgage will normally cost you less than the UK equity release because the French bank has better quality borrowers.