French Mortgage Terms

A French mortgage terms glossary is always useful, but it can be difficult to pack all the explanation needed into concise one line answers.

The comprehensive Best French Mortgage French Mortgage Glossary of mortgage, housing and property terms covers all the essential terms, words and vocabulary (including technical and legal terms) related to French mortgages.

The French mortgage glossary includes:

  • Short definitions of the most commonly used French mortgage terms to help you understand your French mortgage offer
  • Explanations of the mortgage terms used to describe different types of French Mortgages
  • Translations of the more obscure French mortgage terms

It should therefore cover most of the basic French mortgage terms you will need to understand to obtain a French mortgage.

French Mortgage Terms

However, some French mortgage terms are quite complicated to understand, difficult to explain in just a few words often seem to be subject to common misconceptions.

For these more complicated French mortgage terms we have provided this searchable French mortgage terms database

In the French mortgage terms database you will find more detailed explanations of particularly confusing French mortgage terms which seem to be subject to common misconceptions.

The terms included in the database will cover terms which we feel are so important that they need to be explained more fully that can be done in a simple glossary.

Because our French mortgage terms database is a continuous reference work in progress, if you come across a term which you don’t understand and which is not explained here or in our French mortgage glossary here please Contact Best French Mortgage and we will find and send you an explanation personally as well as adding the term to our French mortgage terms database.

If you are buying property near the Italian border you will find much useful information on our Best Italian Mortgage website.

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Gite Income Taxation

Gite Income Taxation on income from gites and French property needs to be understood by French property owners to estimate the after tax value of French gite income potential.

Gite Income Taxation | Letting Income

Furnished and unfurnished lets are treated differently under the French income tax rules with holiday lets falling within the category of furnished letting.

For tax purposes, letting furnished properties is seen as a commercial activity and the income is therefore taxed as business profits called BIC – Benéfices industriels et commerciaux.

Income from unfurnished letting is not seen as being derived from an activity but from the ownership of real estate and is taxed as income from property and land called Revenus Fonciers.

This distinction also explains why an SCI (société civile immobilière) should not let properties on a furnished basis because it would be deemed to be a trading activity and adverse tax consequences would be triggered, in particular corporation tax. Read about a French SCI French Mortgage. and review the latest French Mortgage Rates.

Gite Income Taxation | General Tax Rules

If you are not domiciled in France gite income taxation still applies and you should nevertheless declare the income derived from a French based property to the French Revenue.

In addition, if you are a UK resident, you also need to declare this income in the UK as part of your worldwide income but your gite income taxation paid in France will be allowable through a governmental dual taxation agreement.

In order to avoid double taxation on the same income, there is a treaty in place between France and the UK, which requires the English Revenue to grant you a tax credit equivalent to the amount of the French gite income taxation you have paid.

In France taxation is by household, which means a joint tax form will be lodged by married couples in which the income from all their properties, owned jointly or separately, will be declared. Tax thresholds are also set on a per household, not per spouse, basis.

The tax year is the calendar year, and the income of a given year must be declared during the following year, by May for French residents, and by June for other EU residents.

Gite Income Taxation | Furnished Lets

The gite income taxation regime for furnished lets would automatically fall within the scope of the simplified micro business profit scheme called “micro BIC” provided that the total gross letting income is below the threshold for the calendar year. An automatic fixed allowance of 50% would be applied by current legislation.Gite Income Taxation

These rules were introduced by the Amended Finance Act of 20 April 2009 and as a result the previous threshold of €80,000 and the more generous allowance of 71% have been restricted to properties officially classified as rural gite, chambre d’hotes or meublés du tourisme.

French residents would be subject to tax at their marginal rate of income tax.

Non-French domiciled taxpayers would be taxed at a fixed rate. However there is an option to request the application of the French tax bands of income tax instead of the flat rate if you can prove to the French Revenue that you had previously been a been French tax residents and qualify for a lower tax rate taking into account your worldwide income.

It is possible to opt for the normal scheme (called Réel simplifié) under which accounts need to be prepared. Under this scheme expenses can be fully offset against gite income taxation. For example, if the property is only rented out for three months, only 3/12th of the annual expenses can be offset. Under this scheme any losses can be carried forward to be offset against future furnished letting income.

Gite Income Taxation | Unfurnished Lets

The micro-foncier scheme is automatically applicable to gite income taxation for unfurnished letting where the gross income per household is below the tax threshold and an allowance will be applied. The remaining income will be taxed at a flat rate for non-French tax residents or at the marginal rate of income tax for French tax residents.

It is possible to opt for the normal scheme (called Réel simplifié) if one has sufficient qualifying expenses or can qualify for specific allowances (eg those applicable to listed buildings). However the types of expenses which can be offset are strictly restricted.

Furthermore, French domiciled investors renting new build properties unfurnished may qualify for substantial tax credits against gite income taxation under the generous “Scellier” scheme subject to strict conditions of location, duration of the lease and amount of the rent.

Gite Income Taxation | Current Tax Rates

French tax rates are reviewed annually as part of the French national budgetary process and the current rates are published on the French Government tax website.

 

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Dossier Diagnostic Technique

The French dossier diagnostic technique is a mandatory requirement and the French government require that a number of diagnostics, equivalent to the short-lived UK Home Information Pack (HIPS) scheme, are carried out as part of the French property transaction.

All French property sellers are required to have a dossier diagnostic technique prepared before a compromis de vente can be signed. The results of the dossier diagnostic technique are included in the compromis de vente and subsequent acte de vente. As a prospective buyer you are entitled to know what the dossier diagnostic technique reveals and should study it before applying for a French Property Mortgage.

Dossier Diagnostic Technique | Is It Useful

French dossier diagnostic technique is a comprehensive review of a property that is for sale and it is required by law to be prepared before the property is sold.

As a general rule, if you are considering purchasing a French property, you should ask to see the full dossier diagnostic technique.

The dossier diagnostic technique report can be useful in alerting you to specific problems.

The dossier diagnostic technique does not report on the consequences of any problems disclosed, how the problems could be resolved, or what the material condition of the property is. It will be useful to an artisan preparing an estimate to rectify any identified problems.

It can be very difficult to interpret the contents of the dossier diagnostic technique report and they are best assessed on site if that is possible.

Although assessment may be difficult, the information in the dossier diagnostic technique could be very important and ignoring any of the reported issues could cost you a lot of money.

Always ask the seller for a copy of the dossier diagnostic technique and do not make a purchase offer before you fully understand what the possible consequences and costs of remedying what is reported.

Though it is not usual in France to have a property surveyed before purchase, if there are any issues reported in the dossier diagnostic technique that you don’t understand, or which you understand enough to fear will be expensive to correct, you should take further advice.

Dossier Diagnostic Technique | Contents

DPE (Diagnostic de Performance Energétique)

The DPE (Diagnostic de Performance Energétique) has been compulsory for all sales of French property since November 2006.

Dossier Diagnostic Technique

The DPE rates energy use per square metre of floor area, and environmental impact based on CO2 emissions. If you think it looks familiar you’re right, because it’s the same chart you see on fridges and freezers: B-C-D are good ratings and G-H are weak ratings and A is virtually unachievable for a conventionally built house.

The DPE must be completed before an estate agent can advertise a property for sale, is currently valid for ten years and it should be available to all viewers. Many Estate Agents now include this part of the complete DDT on their website but if not you should request a copy of the complete dossier diagnostic technique before negotiating a price for the property.

The DPE is the same format for all properties and will always be included in the dossier diagnostic technique.

Diagnostic Assainissement

Approximately 5 million properties in France are not connected to mains drainage and since 2011 all properties using fosse septique drainage must be inspected.

The diagnostic assainissement non collectif reports on whether or not the the septic tank conforms to current legislation: most do not. A non-conforming septic tank must be brought into conformity by the purchaser within one year, this usually involves replacement.

The diagnostic assainissement inspection certificate is valid for one year.

Diagnostic Amiante Parties Privatives

Since 2002, every transaction on every French property for which building permission was granted before July 1997 must have an asbestos inspection certificate.

Asbestos was commonly used in French construction from 1950 to 1980, for its sound and heat insulation and fire protection qualities.

The most likely places to find asbestos are wall insulation, chimney linings, false ceilings, and roofs, (including corrugated roofs).

Asbestos is now prohibited, due to its carcinogenic nature, but there is no requirement for it to be removed from non-residential outbuildings.

If no asbestos is present the certificate valid indefinitely.

Constat du Risque d’Exposition au Plomb

Sometimes described as “lutte contre la saturnisme” the test is compulsory on all sales of French houses constructed or renovated before 1949.

Paint containing lead was normal up to 1950 and the most likely places to find lead are in doors and window frames.

In rural areas it was also common to paint walls up to one metre with led based paint to reduce damp.

The inspector will pass a radio-active wand over any damaged paint looking for lead up to 1 mg/cm2.

Presently, only painted surfaces are affected and water pipes are not tested for lead.

The certificate is valid for one year.

Constat d’Etat Parasitaire – Termites

This test must be carried out for all property sales within the defined termite risk zones.

Three types of damage to wood are looked for: termites, woodworm and dry rot.

If damage is found, the owner is responsible for treatment.

The certificate is valid for six months.

Diagnostic Gaz

This has been obligatory since November 2007 for all properties offered for sale with natural (mains) gas services installed more than 15 years ago.

Gas installations (pipes, boiler, water heater and radiators) will be graded as absence of danger, minor risk or grave and immediate danger.

If the surveyor finds the gas installation is dangerous, Gaz de France must be informed immediately.

Although bottled gas is not subject to this test, gas installations such as central heating fuelled from propane tanks will be examined.

The certificate is valid for three years.

Diagnostic Electrique

This was introduced in January 2009 and affects every property with an electrical installation over 15 years old.

It broadly covers:

  • General circuit condition.
  • Overload protection and fusing.
  • Current differential switch fitted and working.
  • Appropriate protection and electrical isolation of equipment in potentially dangerous areas such as bathrooms.

The certificate is valid for three years.

Etat des Risques Naturels et Technologiques

This has been obligatory since June 2006.

The report identifies the likelihood of earthquake or other natural hazards such as flooding or subsidence and includes a list of previous occurrences.

The necessary documents are available from the Mairie, the Préfecture and the DDE.

The certificate is valid for six months.

Mesurage de la superficie privative: Loi Carrez

Confirmation of surface area is required for all dwellings within a copropriété, such as an apartment block or a Résidence.

Since 1997 the seller of such a French property has been responsible for supplying the declaration.

The buyer is entitled to a reduction in the price proportional to the difference if the surface area is proved to be 5% less than declared.

The surface “Carrez” is not simply the floor surface area, because of the treatment of entrances, landings, balconies and sloping ceilings so most sellers commission an official report.

If you are buying a French property such as a flat or studio you should ask to see the Loi Carrez report.

If you are selling a French property, your Estate Agent can advise you whether the law applies.

Détecteur de fumée

From March 2015 every French property must be fitted with a smoke alarm certified to CE14604.

French Business Finance

Understanding French business finance isn’t difficult, but it does require thinking through what you can and can’t reasonably borrow for your business from a banker’s point of view.French Business Finance

In general terms, French business finance lenders will be concerned to establish three things:

  1. That you will be able to afford the repayments on your French business finance.
  2. That the income from which you will be repaying the mortgage is secure.
  3. That you will be putting a reasonable amount of equity into the business to match the borrowed French business finance.

How to Win French Business Finance

The key characteristics of a bankable French business finance proposition are:

  • Proprietary know-how that creates a barrier to entry for others.
  • The potential for scalability to global markets.
  • A business model generating significant recurring revenues.
  • A CEO and management team which includes industry-relevant senior executive(s)
  • A compelling USP such as possession of robust intellectual property.
  • A unique or compelling location, site or asset.
  • A business that competes more on value provided to customers than price.
  • The possibility of growth via acquisitions and/or corporate investment.
  • A business strategy that will attract trade buyers and investors in the public equity markets.

You may not have all of the above in place, but the more items on the list you can tick the better your chances will be of getting business finance.

A useful source of further information is the Invest In France website.

French Business Finance | FAQ

 It is possible to arrange 100 % business finance?

100%  is possible but truly exceptional as, post the dotcom bubble, most funding sources learnt that the risk of 100% financing was too high. If all you have is a business idea and a business plan, however good you believe it to be, then you will almost certainly be unable to raise 100% French business finance. However if you can tick off some of the  items on the Key Business Characteristics list above and if a tangible value can be put on them then you might be surprised how much French business finance you would be able to raise.

Does the business need to have enough income to make French business finance interest payments?

Not necessarily. Most French business finance providers will be more interested in making a capital gain on their investment than on earning interest. If you have the right proposition you may not need to make any repayment of finance for up to 4 years.

What if I’m self-employed?

If you are self-employed you will need to move the business into a fundable structure such as a limited company.

Are euro interest rates expensive?

They have typically been around 2 % below comparable UK rates since the Euro was launched and tend to behave in a similar way to the old German Bundesbank rates. The actual interest rate you pay will be a standard Euribor rate plus a lending margin and will depend on the type of business finance you take. Because French business finance sources are generally more interested in capital gains than interest receipts the tough negotiation will not be about interest rates but about ownership structure.

Can I finance property and building work?

Yes, this is seldom a problem. If the business is well established there is sometimes the possibility of a French Business Mortgage on terms equivalent to a residential mortgage. However, if the essence of your business is a property, such as a hotel, then you will need to be able to prove that you will be able to meet all interest payments, operating expenses and capital repayments.

What about fees and other charges?

It is impossible to generalise as to the size of fees and other charges because there is such a wide variation in business profiles and circumstances. In general term any fees for advisors, such as lawyers and accountants, will need to be paid as incurred whereas the fees and charges for French business finance will fall due after the funds have been contractually offered and may not need to be paid until some years later.

For a free no-nonsense discussion as to how our French Business Startup Finance services can help you build a more successful new or expanded business call us on +44 (0)20 7193 7843 or +44 (0)7948 308 868

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Reduce French Inheritance Tax

Best French Mortgage explain how to reduce French inheritance tax liability and immediately free up capital by using a French Equity Release Mortgage.

Reduce French Inheritance Tax

To reduce French inheritance tax you need to be aware of the inheritance tax rules for all assets held in France.

These are set out in the Code Civil, often referred to as the Code Napoleon, which dictates who will inherit from you and what share each inheritor will receive.

The Code civil will apply to all property you own in France, whether you are French tax domiciled or not.

If you are tax domiciled outside France, none of your assets held outside France will be subject to the Code civil.

Reduce French Inheritance Tax | French Equity Release Mortgage

The simplest, cheapest and most flexible way to reduce French inheritance tax is to use a French equity release mortgage.

Unlike the standard alternatives offered by French notaires, you can use a French equity release mortgage to reduce French inheritance tax at any time after your French property has been purchased.

By taking a French equity release mortgage to reduce French inheritance tax you reduce your net assets held in France (i.e. property asset less outstanding mortgage liability) to below the French inheritance tax threshold.

If you are domiciled outside France, you can immediately move the proceeds of your French equity release mortgage out of France and thus outside the scope of the Code civil and French inheritance tax whilst still enjoying all the benefit of your French property.

However, if you are French tax domiciled, your worldwide assets will be subject to French inheritance laws and this strategy to reduce French inheritance tax will not be effective for you.

This financial strategy is completely legal, entails no legal fees to implement and in today’s financial markets has the added benefit of a potential investment profit because you can choose how to reinvest the equity you release.

Reduce French Inheritance Tax | Cost Effective

Assuming your financial profile meets the French banks lending requirements, we can help you reduce your estate’s French inheritance tax liability in less than 14 weeks.

The solution is very cost effective and the costs are made up of the following elements:

  • A Bank administration and property valuation fee which is likely to be of the order of €1,000 to €1,500. This is only payable if you accept the French equity release mortgage offer and draw down the funds to reduce your French inheritance tax liability.
  • A notarial charge of around €2,000 to cover the legal costs of registering the lending bank’s first charge over the property with the Banque de France. This is only payable if you accept the French equity release mortgage offer and draw down the funds to reduce your French inheritance tax liability.
  • There are no other fees or charges and there are no French mortgage broking charges if you use Best French Mortgage as your French mortgage broker.

Reduce French Inheritance Tax

Reduce French Inheritance Tax | Do I Qualify

The use of a French equity release mortgage to reduce French inheritance tax is not available to everyone, because the French banks have very strict lending criteria which a borrower needs to meet to qualify for a French equity release mortgage.

It is also not permissible to use the equity released to directly enhance your income, though it is acceptable to use the released equity for some investment purposes.

Because of the restrictions, it is not possible to fully cover all the options here. If you are interested in exploring your options in detail, please contact us and we will give you a free personalised assessment of what might be possible for you.

Reduce French Inheritance Tax | Alternatives

If you ask your Notaire for advice as to how you can minimise the impact of the Code civil on your estate you are likely to be offered three alternatives derived from the French Droit de Biens:

  • 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

There are 4 problems with these alternatives:

  1. They can be very expensive to implement
  2. They create an additional tax burden
  3. They don’t totally solve the problem
  4. They are best implemented before your French property has been purchased otherwise significant taxes have to be paid in the form of notaires fees.

French Property Purchase 7 Day Cooling Off Period

French property purchase 7 day cooling off period is something that needs to be understood by all French property buyers, sellers and by all French mortgage applicants.

French Property Purchase 7 Day Cooling Off Period

French property purchase 7 day cooling off period provides statutory protection against decisions made ‘in the heat of the moment’

For the purchase of most goods the general conditions of sale give the buyer the right to return the goods within a fixed period if they are not as described or if they are not fully satisfactory.

Whilst it is not so easy to send a house back to the seller, French law does give the right to set aside a French property purchase transaction if the buyer can prove a claim under the French law pertaining to vices cachés:

Un vice caché est un défaut ou une imperfection dans un article découvert après l’achat et que l’acheteur n’aurait pas pu découvrir par un examen superficiel. Ces défauts ne sont pas découverts par un examen ou des tests de routine, puisqu’ils sont présents dès l’ébauche de la production et n’apparaissent qu’à l’utilisation de l’objet en question.

Généralement, il est du devoir du vendeur de rembourser le bien ou de lui trouver un remplacement, sans défaut pour celui-ci, car cela entre dans la garantie “implicite” de qualité que tout vendeur doit à son acheteur.

To provide even more transparency and flexibility before you commit to such an important transaction as a French property purchase and become bound by the Compromis de Vente, you can benefit from the statutory French property purchase 7 day cooling off period, enabling a purchaser to withdraw from the compromis de vente within seven days of being notified of the right to do so.

The main concern of the law and its application was to ensure that the procedure for notifying the contract to the purchaser was fully respected so that the French property purchase 7 day cooling off period could not be challenged by a vendor or estate agent.

Since the law came into force, article L271-1 of the Code of Construction and Housing has provided that a copy of the initial contract must be delivered to the purchaser by registered letter with acknowledgment of receipt or any other equivalent means for the determination of the date of receipt of delivery.

There are two ways to notify the purchaser of the contract:

  • By registered post
  • By hand delivery.

French Property Purchase 7 Day Cooling Off Period | Registered Post

It is common practice for the estate agent who prepares the initial contract to send a copy of it to the purchaser by a lettre recommandeé avec accuse de réception. The purchaser will then benefit from the French property purchase 7 day cooling off period, which starts the day after they have received the notification.

However, we have seen notifications sent to the purchaser before they have signed the contract.

We have even had cases of French estate agents asking the prospective purchaser to sign the receipt confirming the start of the cooling-off period before signing a compromis.

Neither of these procedures complies with French law and are illegal: French law clearly states that the cooling-off can only start the day after the purchaser receives the contract signed by both parties.

Most reputable estate agents are more careful and wait until they have a contract signed by both parties in their possession before formal notification is sent to a purchaser.

A recent court case that arose regarding the notification by registered letter concerned the purchase by two spouses.  Until the case it was common to send a single notification jointly to the two spouses and it was not unusual to have a receipt returned with only one signature.

It has now been ruled by the French Supreme Court that a single letter should be sent to each purchaser even if they are married and each should return a receipt confirming that they read and understood the cooling-off conditions.

As an alternative, a single letter could be sent to the two spouses but both of the spouses will need to sign the registered letter form or prove that one of the spouses had a valid power of attorney to act on behalf of the other.

It is very important for the Notaire to ensure that the notification was properly sent to the purchaser in order to avoid any argument regarding the application of the cooling-off period and when it expires.

The risk for a vendor would be that a purchaser could claim that the cooling-off notice was incorrectly sent and request a new, legally valid, notification to be sent in order to have the option of withdrawing from the compromis de vente under the French property purchase 7 day cooling off period.

French Property Purchase 7 Day Cooling Off Period | Hand Delivery

The second way of notifying a contract is to deliver a copy of it by hand.  It derives from the practice used by Notaires, as public officers, to give a copy of the contract to a client and ask them to sign the certificate confirming that they received it.

This practice gives simultaneous proof that the client received a copy of the contract and the starting date for the cooling-off period.

The recent decree dated 19 December 2008 has amended the conditions for a Notaire, or even an estate agent, to give the notification by hand and the decree is likely to bring to an end the practice of hand delivery.

French Property Purchase 7 Day Cooling Off Period | The ContractFrench Property Purchase 7 Day Cooling Off Period

The contract must set out the provision of Article L271-2 of the Code of Construction and Housing.

This is not new and practitioners were already carrying the reproduction of this text on the certificate delivered by hand to the purchaser.

The innovation contained in the law is that the beneficiary of the French property purchase 7 day cooling off period must write a sentence on the contract confirming the receipt of a copy of the contract. The contents of the handwritten note are strictly defined by the text.

Furthermore the law requires that the buyers specify the name of the professional who assisted him with the signing of the contract, whether it is the Estate Agent or the Notaire, and the place and date where the contract was signed.

Under French property purchase 7 day cooling off period provisions the buyer will have to answer three questions: who, where and when?

  1. Who: when in accordance with Article L271-1 paragraph 3 of the Code of Construction and Housing the contract is made through a professional who has been mandated to assist in the sale (that is the estate agent) it is thought that it is the name of the estate agency firm which must be provided. If the contract is signed with a Notaire, then his name should be mentioned in the deed.
  2. Where: the author of the decree has not introduced a formal requirement for the designation of the place of signing of the deed and it will indicate the name of the locality where the notice was received.
  3. When: the text that has to be handwritten by the beneficiary states that he is aware that a period of seven days is granted by Article L271-1 of the Code of Construction and Housing.  Then the beneficiary must indicate that this period runs from the day after he receives a copy of it.  The indication written by the beneficiary will have to be checked by the Notaire to anticipate any mistake regarding the wording or the date indicated in the handwritten document.

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