Buying Property in France - finance

foreversummer

Hi

I'll try to be as brief as possible, but would very much appreciate your views.

Hubby and I want to buy a property in france for our own use and possibly for rental. Aim is to retire abroad in 17 years.
Current house in England valued at £210000 with mortgage outstanding of £37500. Anticipate spending £100000 in france including fees etc.

Our thoughts are:

Borrow £137500 on an interest only mortgage at say 6%, repayments would be around the £750 mark. That is affordable to us but our income is difficult to prove and we do not have the required lending multiples based on 3x salary.

In 17 years time though, when we retire we will have two properties both which will hopefully have gained somewhat in value. We can sell one and live in the other depending on where we wish to settle.

In the meantime, we have two properties to enjoy including one in the sun to use for holidays!

Is there anyone who would lend us in these circumstances?

The main pitfall as we see it is that interest rates might rise. However, we do have savings of around £10k, and also of course we could sell the French property if interest rates got really silly.

Your views much appreciated.

herbiesjp

Not sure of what yo mean by "income" difficult to prove - are you self employed? Do you have several income streams?

There are many lenders that could look at more than 3x income.

Many of my clients do exactly what you intend to i.e. raise funds from their property to purchase another.

The only word of caution I would say is look at affordability and make sure you can afford the new mortgage amount you are looking at. There are several lender that could look at this for you.

I think a word with a whole of market mortgage adviser will be able to put you in the right direction.

canny_yorkshireman_2

From what you say i would think the best way to finance the property would be to take a mortgage in france (europe intrests rates are significantly lower than here) the drawback with this is usually the french banks will only lend you up to 70% of the property valuation if you are non resident so you will have to raise some of the capitol at home which should be no problem with the equity in your own house.Be carefull with the affordability as there will be additional bills to pay along with the mortgage so try to get a full picture of all these costs before you buy
hth

Ian_W

Hi,
Why 6%? Unless you've got problems with your credit historyyou should be able, subject to overcoming the earnings issues, to get a <5% rate which would give you repayments of £572 a month or less.

I'd have a look at the mortgage section of the site and particularly Martin's remortgage guide. A broker would be best placed to advise on a lender likely and that's covered too but if you know [or can get a recommendation from family/friends] a local face to face, whole of market broker see what they can come up with. Another source may be your bank if you've been with them a reasonable time. I know ours would offer us more than most lenders but we've banked there over 30yrs.

I've no knowledge of French property but certainly with Spanish property the simplest and cheapest way to finance it is to use your UK home and remort provided you've enough equity, which you clearly have. You could fix the rate to give you some certainty against IR increases but you do need to think about whether you're going to be moving in the UK in the foreseeable future to decide how long.

There are risks in what you're doing but provided you understand that and find them acceptable, over a longer term like 17yrs there is every likelyhood that property price increases, wage increases and inflation will work in your favour.

BoL.

EDIT: Just to cover the point about € IR being cheaper than here, check out THIS SITE. They are about 1-1.5% cheaper BUT if France is anything like Spain they are incredibly expensive to set up compared with a UK one. Additionally you have the costs & risk of currency fluctuations to exchange your repayments to €'s.

foreversummer

Hi herbiesjp

Thank you for your quick reply.

We are both company directors of a small business earning a modest income, total income around £2000 a month although approximately £300 of this is via tax credits, child benefit etc. Have bank statements to prove the income. We do not have expensive tastes in clothes, food, going out etc, so have been able to overpay our currently mortgage. (We are incidently paying £700 a month at present including the overpayment, so we know we can afford it).

Just really need to find out if anyone would lend us the required amount of £137500. Can prove our ability to pay, but we don't score very well on the income multiples. Our credit history is excellent.

foreversummer

canny_yorkshireman wrote:

From what you say i would think the best way to finance the property would be to take a mortgage in france (europe intrests rates are significantly lower than here)

I know the interest rates are lower, but I fear that they are very strict with lending multiples which is where we seem to fall down.

Thanks Ian W

I will look at Martin's re-mortgage guide. It's just getting over the earnings issue that I think will be the problem. I will seek out a whole of market broker. The reason why I thought the interest rate will be higher than normal is because we need to borrow heavily - our credit rating is however excellent. We have never defaulted on anything.

Ian_W

foreversummer wrote: The reason why I thought the interest rate will be higher than normal is because we need to borrow heavily - our credit rating is however excellent. We have never defaulted on anything.

But actually your LTV is only 65% which, provided you can get over the earnings issue [and herbies, as a broker, seems more optimistic than you], then the risk to the lender shouldn't be overly high. Layman's view, but I would have thought a pretty competative rate should be available - which makes affordability even more likely.

foreversummer

Thank you all for your replies.

Just to clarify the point about having the mortgage interest only. Are there really lenders out there then who are quite happy to offer interest only on the basis that one of the properties would be sold before the end of the 17 year mortgage?

When we came up with the idea a while ago, although it seemed to make perfect sense to us, I thought it unlikely that anyone would lend on that basis.

I guess I have seemed less than optimistic, but your replies so far have been heartening.

Ian_W

foreversummer wrote: Are there really lenders out there then who are quite happy to offer interest only on the basis that one of the properties would be sold before the end of the 17 year mortgage?

Most will, I'm sure. The days of having to asign an endowment policy to a lender are long gone. Nationwide have one of the most restrictive policies I've seen, which is:

you are prepared to sell your house at the end of the mortgage term to repay the debt. If this is the case you will need to have at least £150,000 equity in your existing property and we will only lend you 66% of the property value.
http://www.nationwide.co.uk/mortgage/remortgage/repayopts.htm

I think you would qualify under those terms but the non-mutual lenders seem to have few if any such restrictions. Don't think that will prove a problem at all, in fact our Bank LTSB have offered us far more than I think we can afford on similar figures for a possible UK holiday home, Interest Only.