French Equity Release Mortgages

If you have a solid flow of income and a substantial property in France, whether already mortgaged or not, you need to understand the strategic investment importance of French Equity Release Mortgages.

French Equity Release Mortgages are much more than a way of realising the asset value locked up in your French property. They can be a core component of a secure yet profitable balanced investment portfolio and a solid defence of your estate against aggressive French inheritance laws. They can help reduce the tax due on rental income and can be granted on an interest only basis in qualifying cases.

Exceptionally, today's traumatised financial markets offer an opportunity to simultaneously protect your estate, reduce your French tax liability and make a substantial financial gain by using the contrarian investment thinking pioneered by Warren Buffet.

The opportunity exists due to a conjunction of four factors:

• Historically low Euro mortgage interest rates.
  
  
• Historically strong Euro foreign exchange rate.
  
  
• Current French regulations on succession and inheritance tax.


• French tax regulations om mortgage interest paid.

This brief can only give you an overview. Please contact us via the Act Now tab if you would like advice on what's possible for you.

Can I Benefit

Requirements

To benefit you need to be able to tick Yes to the Requirements questions.

Is your property in France worth more than €75,000? Yes No

Do you wish to release more than €50,000 Euros? Yes No

Can you cover the repayments from income? Yes No

Are you in broadly good health? Yes No

Limitations

The Limitations questions will determine what is possible in your particular circumstances.

Are you domiciled outside France? Yes No

(If No, you are subject French inheritance laws on your worldwide assets. If Yes, you will only be subject to French inheritance laws on your assets in France at the time of death.)

Do you have rental income from your French property? Yes No

(If No, you will not be able to consider the mortgage interest payments as a business expense. If Yes, you may be able to offset your mortgage interest payments against your rental income.)

Do you want an interest only French equity release mortgage? Yes No

(Interest only French equity release mortgages are available but they are subject to a net worth test. For most borrowers with substantial equity in their French or or other property this test is not normally difficult to pass with our help.)

Euro (€ EUR) Interest Rate Trends

Euro zone interest rates are presently very low and are unlikely to go much lower.

Our forecasts suggest that the turning point of this interest rate cycle will come between Q3 2010 and Q2 2011. For more details go to our Market Trends page.

Our view is presently that we're slowly emerging from a "U" shaped global recession and that the world economy got back onto the path to growth in Q1 2010. Growth will be fuelled by the recent period of low interest rates supplemented by the policy of "quantitative easing".

The combined stimuli that the world economy has received is likely to lead to a period of a rapidly rising interest rates, driven by inflationary pressure and the enormous overhang of national debt in the major economies.

In this set of circumstances anyone with a fixed rate loan, fixed at these historically low levels, will win big time as they will have cheap money into the future and the real value of the debt will be eroded by future inflation.

Already UK/US lenders have widened spreads to rebuild reserves and we forecast this trend spreading to the Euro zone during 2010, so if you want a bargain interest rate don't wait around too long or they'll be gone.

The full details of current ECB interest rates can be reached at the European Central Bank website here

Euro (€ EUR) Exchange Rate Trends

The period of historically high Euro (€ EUR) exchange rate against both Sterling (£ GBP) and the Dollar ($ USD) is now passing, due to the out of phase economic cycles of Europe (principally Germany), the UK and the US.

It would be a brave investor that was prepared to bet on getting this level of comparative price advantage into 2010.

In terms of long term investment strategy, realising Euros (€ EUR) now and converting them to Sterling (£ GBP) or Dollars ($ USD) could represent a very shrewd investment move.

Longer term, 2011 and beyond, it's likely that the transaction could be reversed to pay down your Euro (€ EUR) Equity Release French Mortgage at much better rate (i.e. with the Euro much weaker).

As an illustrative example using data from mid 2009, suppose you released €100,000 of equity from your French property now and converted, it at the then rate of €1.15 to £1.00. You would net £86,956.

If you held the Sterling until 2011, by which time the Euro (€ EUR) might have rebounded to €1.55 to £1.00, it could cost only £64,516 to repay the loan.

If you add in two years Euro interest on the loan the real sum to repay, including interest, would be around €112,000 (or £72,258) which could leave you with a profit of £14,698 or £7,349 per year. And that's before you add in any Sterling (£ GBP) or Dollar ($ USD) interest received.

Graph for GBP/EUR 29/07/2009 courtesy of First Rate FX

To see the full and up to date daily spot exchange rate history graph against Sterling (£ GBP), the Dollar ($ USD) and the rest of the worlds currencies go to the European Central Bank Euro exchange rate page here.

French Inheritance Law

Simply put, all estates in France are governed by the provisions of the Code Napoleon. Under this code French law decides who will inherit from you and how much each will inherit.

Conventionally, the advice is to use one of three approaches to minimise the effect of the Code Napoleon on your estate:

• The 'Communauté universelle' marital regime to avoid Reserve Legale and avoid inheritance tax between spouses

• Property purchase en tontine to avoid the Reserve Legale

• An SCI to avoid the Reserve Legale

However, to our mind, there are two problems with the conventional advice, it can be very expensive to implement and it doesn't totally solve the problem.

We prefer an alternative, cheaper and simpler, approach. Use a French Equity Release Mortgage so that your net assets in France (i.e. property assets less outstanding mortgage liabilities) are as close to zero as you can make them.

Why? Because if you are domiciled outside France, you can move the proceeds of your French Equity Release Mortgage out of France and thus outside the scope of the Code Napoleon whilst still having all the benefit of your French property. (If you are French domiciled, your worldwide assets will be subject to French inheritance laws).

This financial strategy is completely legal, costs no legal fees to implement and in today's financial markets has the added benefit of a potential investment profit from low € interest rates and a high € exchange rate.

Conclusion

Assuming you've followed our reasoning on the previous tabs and can answer Yes to most of the questions on tab 2 (Can I benefit), we suggest that the conclusions are clear.

1. Take no financial risks and don't bet all your assets on one strategy.
   
   
2. Capitalise on today's low Euro interest rates by taking the maximum French Equity Release Mortgage that your property warrants whilst ensuring that the repayments stay within your financial comfort zone.
   
   
3. Move the released Euro's into your local currency to capitalise on the present strength of the Euro. Make sure you use a wholesale foreign exchange dealer to get the best rate: see our Foreign Exchange page for details.
   
   
4. Ensure that your assets (essentially your French property) and your liabilities (essentially your French Equity Release Mortgage) remain broadly in balance with a small surplus. You will have no future contingent foreign exchange risk because your asset and your liability are denominated in the same currency.
   
   
5. Sit back and wait for the inevitable market re-adjustment on the Euro exchange rate. Inevitable? Yes, the timing is uncertain, but that there will be a future re-alignment is certain.
   
   
6. After the currency re-alignment, consider whether you wish to buy out your mortgage at a discount and re-mortgage or perhaps just sit secure in the knowledge that you net assets are out of reach of the Code Napoleon.
   
   
7. Act very soon because this set of circumstances will not last long.

Act Now

To obtain a no obligation Equity Release Mortgage illustration for just click on the Apply Now button below.