Last month’s article on the most popular French ski resorts to buy property whetted many readers’ appetites – so here’s how to go about turning your dreams into reality. Dylan Mitchell reports
Both real estate and mortgages in France are highly regulated. This makes it one of the most secure property markets in the world and one of the reasons that it has long been a popular place for investment and second homes.
That said, arranging a French mortgage and buying a property can still seem like a minefield to the uninitiated. To help, here are some key points to consider.
Whether you are looking for a holiday home, an investment or a combination of the two, in the French Alps you have a couple of options.
Holiday home/buy to let
Throughout the Alps, there are a wide range of chalets and apartments available for all budgets. The most famous resorts of Val d’Isere, Courchevel and so on offer luxurious properties for €1m to €5m.
More affordable properties are also available in less well known resorts.
Should you want to receive an income from these properties, local management agents will be able to maintain and manage the rentals for you. Typically you would expect to pay a management fee of 25% plus costs such as cleaners, taxes and insurance.
This is a form of buy to let that was created by the French government in the 60s. Essentially, you would purchase a chalet or apartment and then lease it back to a hotel group in return for a guaranteed rental income.
As part of the government incentive, investors receive a 20% VAT rebate off the purchase price and owners can deduct 4% a year for depreciation against income. This, when combined with a mortgage repayment, will virtually eliminate French income tax for the first 20 years.
Leasebacks offer the advantage of a hands-off property investment, with tax incentives, that owners can use for up to six months a year.
Although there is a lot of protection for buyers investing into French property, investors would be advised to only lease their properties to large, established hotel groups.
What about the summer? Often buyers are so focused on getting a ski property that they overlook the summer months.
When the snow melts away, it reveals a beautiful lush green mountain range dotted with picturesque Alpine villages.
There are festivals throughout the summer and the weather is fantastic with long, hot, sunny days, making it an ideal destination with a wide range of activities such as hiking, cycling, mountain biking, canoeing, white water rafting, paragliding, horse riding, golf and many more.
When looking at property in the Alps, consider what options are available in the summer, which will allow you to make use of your property all year round and will most likely make a better long-term investment.
What are you looking for?
Three of the most important criteria to keep in mind are capital appreciation, cash flow and personal use.
By investing into areas that are up and coming or are undergoing rejuvenation projects, you will be able to benefit from the natural upturn in real estate prices.
At the moment, among others, areas in the Alps to watch include Courchevel, Chatel and Sainte-Foy-Tarentaise.
When looking for a property that will provide you with a return, there are a couple of things to consider.
Firstly, the rental income that the property generates should ideally cover your mortgage repayments and any other costs, which would make it ‘cash flow positive’.
If you are also going to use the property, then another consideration should be how much you are saving each year on family holidays, which could be considerable if you have children.
Ensure that your property has the facilities that you will want. For example, if you’re looking for a ski property, ensure that it has ski lockers, is close to the lifts and within easy walking distance to the shops and restaurants.
If you are looking for a property that you can use all year round, then also make sure you are within a real village or town where people live all year round and which has easy access to lots of summer activities.
French banks will calculate affordability of one-third of your income before tax. For example, you earn £60,000 a year, which means that the bank will accept that £20,000 a year can be used to pay for the rent or mortgage on your main residence plus the cost of the new mortgage on the property in France.
This is a very simple example and some banks are more flexible in their criteria, but this will give you a good estimate.
Loan to value (LTV) is the percentage of the purchase price that you can borrow. Non-residents can currently borrow up to 85% of the purchase price, which means that you would need to contribute a 15% deposit plus the legal fees paid to the notaire.
The banks will also charge an arrangement fee of 1%, but this is often capped for larger mortgages.
All French banks require life insurance and the policy will need to be issued before the mortgage starts.
The interest rates, lending criteria and types of products vary greatly from one bank to another. It really is worthwhile seeking advice from a French mortgage adviser before starting the process of buying a property.
Unlike in the UK where each party appoints their own solicitor to represent them, in France a notaire is appointed to handle the property transaction for both the buyer and seller. This is because the notaire does not represent each party, but instead acts on behalf of France.
The notaire’s primary responsibility is to make sure that all matters relating to the purchase are legally correct, which ensures that the buyer is protected under French law. The notaire’s role includes everything from ensuring the title deeds are properly compiled, through to checking that the property has the necessary planning and permissions.
When paying a deposit, ensure that this is held by the notaire instead of the estate agent. Also, if possible, ask for an English- speaking notaire to be appointed.
If you are buying a new property from a developer, then you will sign a ‘reservation agreement’. If it’s an existing property, then you will sign a compromis de vente.
You should receive an English version of the contract or ask the notaire to explain it to you in detail.
These agreements tend to be standard and will allow you a seven-day cooling off period after signing, which gives you the option to change your mind and withdraw from the purchase.
The notaire will then refund your deposit. You also have 30 days to arrange a mortgage, although it is worth asking for this to be extended to 60 days, as it can take this long to arrange a mortgage in France.
The British Pound is currently at a six-year high against the Euro, making this an opportune time to buy property in France.
However, you can save even more money by using the services of a Foreign Exchange Dealer.
Their services are available to anyone, not just the ultra-wealthy, and they will typically save you 3% to 5% on the exchange rates offered by the high street banks, which makes a big difference when you are considering buying a property.
France has double tax treaties with all members of the EU, including the UK. This ensures that if you pay any tax in France, that tax is deducted against any tax liability in the UK, if any.
Owners of French property should be aware of income tax, capital gains tax, taxe foncier, taxe d’habitation and wealth tax. This can seem like a lot to cope with, but the French tax regime is clear and well regulated, making it fairly simple to organise.
You can also simply appoint a French accountant to deal with this process on your behalf.
Property in the French Alps comes in a variety of shapes, sizes and to suit all budgets. If skiing back to your own chalet or apartment at the end of an exhilarating day on the slopes is your dream, then maybe now is the time to make that dream come true?
Dylan Mitchell is director of French Leaseback.com