Buying Property Abroad: The Highs, The Lows, The Benefits, The Fun And The Profits
If you take a long-term view then France is an excellent place in which to invest. Although the euro remains stupidly strong against sterling, that won’t last, and it doesn’t matter that much anyway, because, apart from the deposit, you’ll be borrowing euros and repaying in euros from euro rental income. And loan-to-value French euro mortgages are available for 85%, so the deposit is small.
Taking a historic average euro/pound exchange rate, relative property prices are still lower than in the UK or Germany. As public transport improves all over Europe, making it easier to get to France and to move about when you’re there, this price difference will be reduced and French property prices will rise until they are much more in line with Britain’s. This makes an investment in French residential property an interesting prospect. However, it is not without its downside. French property has traditionally been affected by three factors: firstly, the less onerous restrictions on space and planning consents in France when compared to the UK - this, however, is reflected in the current price differential; secondly, the transaction costs which can be as high as 15%; and thirdly, the running costs of renting out the property. However, given the long-term view and the low euro mortgage interest environment, now would seem to be as good a time to invest as any. As you may know, that ’s what I am doing and I thought that I’d give you some insight into what I have learned.
Remember that the nice aspect of investing in French property is that you can always forgo the rental income and either use it for holidays or live in it yourself.
How To Buy Property In France
Up until about 20 years ago a typical second homeowner in France was more likely to be Italian or German or Dutch than British. Very few Brits were buying there. In fact those Brits who had taken the plunge tended to be in one of two groups: either the wealthy buying a luxurious villa on the Riveira, to fit with their jet-set life styles; or the middle class, with more limited finances and looking for somewhere to retire. For the latter this was often a make or break decision and meant a permanent move.
Things have changed! Since the late 1980’s the British have been buying true second homes in large numbers. Figures provided by the French Tourist Office suggest that more than 200,000 UK nationals now own a property in France, most of them purchased in the last 15 years.
Today a typical buyer is more likely to be a young professional, often able to use modern technology and communications to retain their job in the UK while living, at least part of the time, in France.
A Change Of Mindset
This underlies a change of mindset that I think has become evident in the UK over the last few years. In the past, potential buyers have been put off the idea of owning a property that would be left empty for the best part of the year. The alternative was to let the property when not in use by the owner, but there were still worries maintaining a second home at a distance and associated management problems. In the late 1990’s the Buy-to-Let scheme was introduced in the UK. Although this related to financing UK properties for UK investors, I think that a side effect of this scheme was to change our attitude towards owning and letting properties generally, particularly at a distance, which is now much more acceptable. It ’s then only a short step to taking on board the advantages of owning properties abroad and, let ’s face it, the English Channel is only 22 miles wide.
Coupled with this is a the growing awareness that:
- French properties, in many areas, are still cheap when compared to UK prices, given historical pound/euro exchange rates (which will bounce back).
- It is relatively easy to let your property when you aren’t there to get extra income to cover the running costs.
- It is now relatively easy to fund purchases through French lending institutions.
Why Are So Many People Buying Second Homes In France?
I suggest that there are four main attractions to buying a second home in France:
- It ’s a great place to spend your holidays and weekends.
- It ’s a great place to live (and work).
- It ’s a great place to retire.
- And, when you buy a second home, it ’s not just somewhere to live or go on holiday to, it ’s also an investment.
It’s that last point which I think has really caught the imagination of French property buyers. Even a true holiday home can provide extra income if you let it out when you’re not there. And owning a property, whether a holiday home or a permanent residence, can increase your net worth, as you benefit from rising capital values.
In the 1980’s French property values were relatively low but over the last 15 years or so, with increased demand from buyers all over Europe, prices are now much higher. Suddenly there is a realisation that French property, if purchased properly and in the right area, provides an excellent investment opportunity.
What About The Future
In the last few years French property prices have remained pretty flat; they haven’t dipped like in many other parts of world, especially Spain, next door.
At the moment I can’t see any reason why this should change in the medium term. Demand for French property is still pretty firm from buyers all across Europe. As in the UK, French property is benefiting from ‘affordability’ due to low interest rates.
If you have some spare cash to invest here are some other reasons why French property is worth having a look at:
- There are many areas that are relatively overlooked at present. I think we’ll see buyers looking in these fringe locations pretty soon and we’ll see prices rising accordingly.
- On a like for like basis, returns on French property tend to be higher than for the equivalent UK property.
How To Find A Bargain In France
France has always been renowned for its lifestyle and property bargains, especially inland. However, if you really do want to be on the Riviera, for example, you need both money and luck. Few properties come up for sale and those that do are costly. Equally, any constructible land is gold dust, but even should you find it, you are only permitted to build on 10% of it.
There is still amazing value inland, which is where you should be hunting, but he careful what you buy. Get it right and average yields of 7.5% of annual rent can be had, but to achieve this you need to rent out your property for around 25 weeks a year. Your property will, therefore, need to be close to an airport, look good in a photo and offer a few local attractions.
The best way to get a cheap property is to go to one of the property auctions that take place all over France every day. These sales can seem archaic, but they offer real bargains. The reserve price is generally set at around 50% of the estimated market value, and most properties are sold for around 70%. Details of auctions are published six weeks before in local papers and potential buyers usually appoint lawyers to bid for them. Sealed bids are submitted on the day, and if accepted a 10% deposit is required.
So, If You Think You’d Like To Buy A Second Home In France, What Do You Need To Do?
Before you book the next Eurostar out of St Pancras, there are lots of things you should consider. Remember, there is no such thing as a totally risk-free investment.
- Think through, first, why you are buying. Are you buying purely for your own enjoyment? Or are you going to want to make some extra cash from renting it out when you’re not there, and even benefit from some capital growth over time?
- Are you thinking of a permanent move, or a hliday home? The answer may affect where you want to buy.
- If you are buying as somewhere to go for holidays or long weekends, think about how you are going to get there, and how long it ’s going to take you. The best locations for ‘long weekenders’ are near the channel ports, or within easy driving distance of airports.
- Even if you are buying to use the property for longer periods, like the fortnight family holiday in the summer, you’ll still want it to be reasonably accessible so that you don’t have to spend most of the holiday on the motorway.
- If you are buying for retirement or as a permanent home, accessibility may be much less of an issue if you are not travelling to and fro so often. Thus, you can look in more remote, and cheaper, areas.
- When consulting with “wannabe“ investors, I always get them to think about their exit strategy before they even start looking. Having a second home in the sun is most people’s dream, but what if because of ill health, bankruptcy or even divorce you have to sell and get your money out. How easy is that going to be?
- For additional security, you might want to buy a property in an area with proven demand, even if this means that you have to pass on your ideal dream home. For example, your dream-come-true might be a remote farmhouse miles from the nearest village, which you can buy cheap because it ’s been on the market for 2 years. However, financial security might require you to look instead at the development of modern villas on the coast with quick resale potential.
- If anything, the French tax authorities are even more intrusive and demanding than our own. Just because you’re from Blighty and can’t speak a word of the lingo doesn’t mean that you will be able to happily ignore the French tax system. In France, ignorance definitely isn’t bliss; it leads to big problems. When you buy a French property the taxman comes with it, automatically.
You will be expected to:
- Pay two local taxes like our council tax, one as owner and one as occupier (if you have tenants you’ll only pay the owner’s tax).
- Account for all rent and expenses.
- Pay income tax on rent received, but even if you don’t receive any rent, you’ve still got to send in a fully-completed tax return or risk fines and punitive interest.
- If your property (and other French assets) are worth more than €800,000 you will have to pay an annual wealth tax.
- Pay various social contributions, a bit like National Insurance.
- Think about security. If you aren’t moving out there full-time, the chances are that the property will be empty for long periods, although if you buy in the right areas that appeal to tenants it might not be vacant that often or for too long at any one time.
- Think about what you need in the way of local amenities. There’s absolutely no point in buying what would otherwise be your dream holiday home if you love nightclubbing and eating out, but the property is located in the middle of nowhere at least an hours drive from the nearest decent-sized town. Or if you are single, you might not feel comfortable living in the middle of the country with no near neighbours.
- If you opt for a property in a resort, make sure you know what its like out-of-season. Some seaside towns can be like ghost towns in the winter when the holiday-makers have gone and local businesses shut down. You might like that. If not, it might come as a nasty shock when you spend your first winter there.
How To Find Your Property
So, if you think buying in France could be for you, how do you go about finding your ideal property?
The best advice I have heard on buying in France is to take three simple steps before you start looking. These are:
- Research thoroughly into which area you want to buy.
- Work out how much you can afford to spend.
- Look for properties in your price range in your preferred location.
Let ’s have a look at these in more detail.
First, Research Thoroughly Which Area You Want To Buy In
Your chosen area might be determined by accessibility, the price of properties or even the weather. France is a very large country, with a very varied climate and geography – look at the difference between The Shetland Islands and Brighton.
If your interest is primarily in having an investment, which, of course, you can also enjoy as a second home, your decision of where to buy may be based on more practical and economic considerations. For example, a friend of mine works for a company that assists investors who buy properties all around Europe, always within easy access of airports where new air routes are announced. With the sudden burst of new airlines like Easyjet and Ryanair, they’ve been having a field day. How does this apply to France? Well, most low-cost airlines operate there.
You might think: “Surely I’ve missed the boat! Those routes are up and running now and property prices will already have been impacted”. Well, to a degree, but in my opinion as the demand for French property continues to increase, prices will continue to be pushed up further in the more easily accessed areas and, importantly, new routes are opening up all the time.
Then, Work Out How Much You Can Afford To Spend
Before you start looking you need to work out your budget. The first thing you need to realise is that although the property, square meter for square meter, will almost certainly be significantly cheaper than the UK equivalent, the costs of purchasing will be much greater.
In the UK you’d budget a few hundred pounds for the solicitors fees and searches, and depending on the value, up to 5% for stamp duty. However, it ’s common practice in some parts of the France for the purchase price to include the estate fees. And as purchaser you’ll also be responsible for all the legal and registration fees of the conveyance, which is administered by the Notary.
On new properties you’ll pay TVA (VAT) at 19.6%, although this should be included in the asking price and shouldn’t be a hidden cost. However, if you are thinking of a new property, I recommend you check what the asking price does include. All in all when buying a property in France you need to budget for purchase costs of at least between 10% and 15% of the purchase price.
Next, you need to decide where the money is coming from. EU rules on finances have been relaxed over the last few years, making it much easier for non-nationals to arrange loans in other countries.
In practice this means you will now have a choice of four methods of funding, or a combination of two or more of them. They are:
- Borrow funds from a UK lender with the loan secured against the property you’re buying.
- Borrow funds from a French lender with the loan secured against the property you’re buying.
- Borrow funds from a UK lender with the loan secured against your existing home i.e. through some form of second mortgage or equity release scheme.
- Pay cash.
The last option, paying cash, might depend on whether you have sufficient savings or investment sets aside that you can cash in. Or you might be in the position of selling up in the UK to move full- time, either to work in France or to retire there. A variation on this is to retain your UK property, but take out the equity through a second mortgage or an equity release loan. If you are approaching retirement age this might not be possible.
Several UK lenders have specialist departments dealing with loans on European properties, and several have subsidiary companies located in France. If you have a good relationship with your bank manager it might be worth starting with a phone call to see if your bank lends in France and whether they’d be interested in assisting you.
Some purchasers go direct to French lenders. There are advantages to this, such as:
- They know the local area and can often make an ‘in principle’ decision fairly quickly.
- Continental interest rates are even lower than ours at the moment, so in relative terms the loan will be cheap.
However, you need to decide how you feel about taking out a loan in euros. It ’s difficult to predict how the currency markets will be doing next year, let alone in five or ten years. If you meet someone who tries to do exactly that, I would take their predictions with a pinch of salt, and then try to find out how much commission they’re on! In the meantime you will have to come to your own conclusion on whether you will be better off with a sterling loan or a euro loan. There is one key difference in the way the French approach property lending which might be disadvantageous to you and which may tip the balance in favour of a sterling loan through a UK lender, and that ’s how the French actually calculate how much they will lend you.
In the UK we are used to the lender offering a multiple of your income, say three or four times current salary. Nice and simple. However, things in France are not so straightforward.
French lenders do not look at your current earnings. Instead they look at ‘affordability’. First, they will start with a figure equivalent to 33% of your gross monthly income. If this were not bad enough, they will then deduct your monthly outgoings (which obviously you are obliged to declare on your application), and use whatever is left over to calculate the size of the loan you can afford to repay.
So, if you earn £2,500 a month, they will take 33%, in other words £832.50, and from this deduct your monthly outgoings. If these are £500 a month, then they’ll assume that you can afford to pay £332.50 a month towards your loan, and work back from there to calculate the equivalent lump sum they can lend you. This will obviously depend on prevailing interest rates, but for arguments sake £332.50 may be the monthly repayment on a loan of £60,000. That is the maximum they will lend you. Patronising, isn’t it?
You will find that the set-up costs of a French mortgage are be greater than the UK equivalent, and in general a French bank is currently likely to lend a higher proportion of the purchase price than a UK bank - you should get 85%, even if buying as a holiday home.
Then, Start Looking For Properties In Your Price Range In Your Preferred Location
Once you’ve worked out where you’d like to buy and how much you can spend, you can start looking properly. Finding French properties for sale is relatively easy. There are many options available to you, so you can spread your net far and wide and have the best chance of finding your dream property.
Before you start looking seriously, I suggest that you attend one of the regular French Property Exhibitions that are held around the UK. They are usually advertised in the ‘foreign property’ pages of the national newspapers, especially the ‘Sundays’. The larger exhibitions are a fantastic way to get a feel for what types of property are available, where, and for what price. You’ll then be able to form a much better idea of what will suit your needs and budget.
You’ll find some French agents exhibiting, but mainly you’ll find it is either British estate agents who deal with French property, or British broking firms.
The broking firms effectively act as sub-agents for French estate agents. They often promote properties for more than one French agent. The larger brokers handle properties for a dozen or more French agents. This is useful, because it means that you can look through the listings of more than one agent at a time with just a single registration.
Most agents and brokers, whether British or French, now list their properties on the internet. A simple search through a search engine using ‘French property’ will bring up numerous websites and give you a good idea of what ’s available and at what price.
If you find details of suitable properties you can arrange an inspection trip through the agent. There is no substitute for looking at the properties first-hand; I would never advise anyone to buy property unseen (you’d be surprised how often this does happen), especially when it ’s overseas. It ’s only when you’ve seen it first-hand that you can get a feel for the locality and local amenities.
This is not something that can be organised overnight and because of the inevitable time-lag between hearing of a suitable property and actually getting across the channel to look at it, potential buyers can be disappointed to find that the property has sold before they get there. So, if you are interested in a property, do check before you travel that it is still available. If it isn’t, you might be able to review your plans, and save wasted time and money. It is always best to choose a selection of properties within an area, so that if a couple are sold then there are always others to view.
And Finally …
I have friends who’ve bought an old chateau near Nimes, on the cusp of Provence. It ’s an enormous place (maybe 50 rooms or so) and they really picked it up for a song, €500,000 or thereabouts, in a sealed bid situation as demanded by the local mairie (mayor). Having spent on it a generous sum of money (I’d estimate in the region of €150,000 to €200,000) it ’s now worth “somewhere between €800,000-€900,000,” I am informed. But this doesn’t surprise me. It sold for far, far too little and they bought it about 10 years ago. Seemingly, few people at that time wanted to take on such a substantial development, many prospective purchasers were put-off by the method of sale (I don’t know anyone who likes to engage in sealed bidding), and there aren’t that many individuals around with the kind of vision we all knew my friends possessed, and which has now been proven.
They have made one mistake, however; that being changing their plans half-way through renovations, from viewing the project as a commercial exercise to opting to live in the place as a family home. It ’s just, well … vast . The heating and lighting bills, the window cleaning, the grass cutting, the dusting, the polishing, the routine maintenance … ruinous!
But as a commercial endeavour, to turn into luxury apartments, a hotel, or whatever, these grand houses - of which there are many all over France, in various states of disrepair - represent terrific value for money on a pounds/ euros per square foot basis.
It ’s what everyone wants that commands the keenest prices, the three to four-bedroom townhouses with a garage, a little land, but not too much, with maybe a conservatory as a feature. Maintenance of comfortable proportions results in high demand. People would rather pay more up-front to avoid continually high running costs down the line, which is undoubtably sensible.
And yet, if large structures are partitioned and the inevitable maintenance costs are evenly distributed into moderate annual service charges, then living the grand life doesn’t have to result in bankruptcy and destitution. Indeed, there is an argument to suggest that it can be best for an old behemoth of a building to be separated in this way and ‘enforceably’ maintained, because otherwise decay can result from the custodianship of those who cannot afford to keep up with the constant process of repair and renewal that such places invariably require.
We have a duty to look after what architectural heritage remains in Europe, that which the elements, the ineptitude of local planning departments and the Luftwaffe have not destroyed. Gone are the days when architects, designers and builders used to stick up wonderful properties of substance and beauty as a matter of course, in this country or abroad. Compare that staggering-expensive ministerial monstrosity Portcullis House with the Houses of Parliament situated next to it. Compare the stupendous and newly-renovated St Pancras Station with the flat red brick dull-as-dishwater exterior of the adjacent British Museum.
Compare the gorgeousness and intricate detail of the Natural History Museum with that 1960’s Godforsakenness that is the South Bank complex. Compare gentle, delicate, well-planned and meaningfully-built suburban residential centres like Chiswick or Queens Park with the desperate soullessness of Docklands or, heaven forbid, Milton Keynes. Compare the flimsy Millennium Bridge to any one of Isambard Kingdom Brunel’s one-hundred-and-fifty-year-old creations. To celebrate the height of the Empire the Crystal Palace was erected in the centre of Hyde Park, its content and construct a symbol of Victorian achievement, a monument to human advancement.
Okay, gone are the days when skilled craftsmen would work all day and doff their caps in return for the monetary equivalent of a kipper sandwich, but, really, to celebrate the second millennium we British were blessed with … the Dome, which looked horrible, had seemingly been built with no alternative use in mind and was a place that precious few wished to visit. Hey, that ’s progress for you. Science, medicine, education, literature, entertainment and travel, by way of examples, have come a long way. Whether art is now better or worse is debatable. However, there’s no argument when it comes to architecture. Excepting a very few remarkable examples (which don’t trip easily off the tongue), mainstream modern architecture, in Britain or France, is mostly pitiful, soulless, thoughtless, unimaginative, uninspired, vacuous and backward.
Belles Demeures : Excellent, comprehensive, properties-for-sale catalogue covering the whole of France. Many bargains, from cottages in Brittany to wonderfully cheap apartments in the Languedoc region. Has to be viewed. Nothing comparable in the bellesdemeures.com
France is a great place to buy, but do be aware of the differences in culture and customs. Here are a few tips:
- Remember that it costs around 12% to sell (estate agent’s fees etc) and to buy (notaire’s fees etc).
- It is very common to do part of any property deal in cash for “fixtures and fittings” to keep the tax down, but …
- … it has been known for the French government to issue a tax demand for the odd thousand pounds simply because they’ve decided that you underpaid for the property according to their figures. This will be sent to the wrong address and when the final demand arrives there will be no right of appeal. (We only got away with it because a personal friend is a tax inspector in France - he had a quiet word on the phone and we never heard another thing.)
- French banks and bureaucrats are very similar to England … er, in the 1950s.
- All bank accounts are logged centrally at the Bank of France. Go 1 euro overdrawn without permission (even if it’s the bank’s fault) and you will be blacklisted and have to pay a surety to said BoF, returned if you behave yourself for a year. Do it again, or for too much, and you will be banned from ever holding a bank account in France, at any bank. This is enforced by the central logging of all accounts, and explains why 10% of all workers in France have to be paid in cash. l French insurers work from the basic premise that the claimant is a fraud and a liar, and it will be up to you to prove otherwise. “You say a lorry knocked down part of your wall, but where is the proof? We think you did it yourself to get the insurance money” etc.
- French inheritance law demands that a property’s ownership is divided equally between all children on the death of the parents. The ensuing wrangles go on for years, which is why so many old houses in France are just left to rot, which is a real shame. If you are a couple who are not married you need to be especially careful about ownership details. There is, however, the wonderfully titled “certificat de concubinage” that you can apply for at the local mairie (town hall).
- If you buy a property that appeals to you as a Brit, when you come to sell, it will mostly appeal to other Brits and that should be your target market. The French wait until their 50s, then buy a plot of land and get a builder to put up a “standard design” new house. l French flats are sold on a co-proprieté basis - i.e. shared ownership of all common areas - there is no such thing as leasehold. In our case, all maintenance decisions are taken at a yearly meeting of all the owners who care to attend. Such meetings are, of course, in French, and the participants rarely, if ever, understand the technical issues involved in decisions such as the replacement of the entire hot water system of a 4-storey block of flats. Makes your local parish council look like the very model of streamlined decision-making.
- Getting a phone installed is efficient and cheap (one tenth of BT’s charges), even if the phone points look like they could pass enough current for a 3-bar electric fire!