How Equity Release Works in France
Equity release in France is a great option for anyone who wants to release equity from their home, without being forced to sell up and downsize properties.
In France, you are able to release up to 50% of the current value of your home, to spend on whatever you want.
Usually, the maximum loan amount in France sits at around 300,000 euros, meaning that this is usually the maximum amount you are able to release from your property.
It is important to understand how equity release works and to understand that equity release in France works differently to equity release in the UK.
For example, in France you have to make monthly payments until you pass away or move into a care home and sell your home to pay off the loan.
In the UK, it is not mandatory to make these payments each month, if you don’t want to [1].
Equity Release in France
If you have repaid your mortgage on your property in France, then you will be able to apply for an equity release loan in France.
This is able to fund home improvements, go on holiday, help family and loved ones with the cost of further education or simply fund a better lifestyle in retirement.
If you still have a mortgage to pay off on your property in France, then you might not be able to take out a second mortgage or apply for an equity release loan on the same property.
This was put in place across France in 2014, to control the amount of debt homeowners are exposed to across France.
Equity release in France is becoming an increasingly popular option for those who have already paid off their mortgage.
There are a few different terms to describe ‘equity release’ in France, including cash-out finance, a second mortgage or a home equity loan.
In France, there are two main types of equity release, including home reversion plans and lifetime mortgages.
Home Reversion Schemes
One of the most popular types of equity release loans across France is known as home reversion plans. In the UK, home reversion plans are a lot less common and popular than they are in France.
With home reversion plans, homeowners sell a percentage of their home to a lender, in exchange for a lump sum or drawdown payments. They will continue living in the property until they pass away or move into a care home.
Lifetime Mortgages
An alternative to home reversion plans across France is a lifetime mortgage. These types of mortgages are a lot less common in France than they are in the UK.
As a result, very few lenders across France actually offer lifetime mortgages to homeowners.
Viager
Viager is becoming an increasingly popular option for those living in France who want to gain access to some cash, whilst being able to remain living in their home for as long as they want. In France, Viager is another type of equity release [2].
Viager involves selling your property for a reduced price to a buyer, in exchange for either a lump sum, or regular, drawdown payments, commonly referred to as a bouquet.
The homeowner has the right to live in the property until they pass away or move into a care home. Once this happens, the buyer then takes over the ownership of the property [2].
Whilst this is a unique form of equity release, it has many benefits. For example, by taking out a Viager scheme, the homeowner will have a steady income throughout their retirement and later life.
Likewise, it allows the homeowner the opportunity to remain living in their home, where they will feel most comfortable.
If you are considering taking out a Viager scheme, then it is incredibly important that both parties involved (the homeowner and the buyer) seek legal advice.
The biggest risk associated with taking out a Viager scheme is the uncertainty of the homeowners lifespan. Likewise, if the homeowner needs to move into a care home, then the payment made to them might not be enough to cover their costs [2].
The Equity Release Process in France
The equity release process in France is quite straightforward. In order to apply for an equity release loan in France, you must speak to an estate agent and have someone value your home.
This will give the lenders a good idea as to the value of your property.
You will also need to seek the advice and support of an adviser and solicitor to help you through the application and conveyancing process.
It is important to understand that there will be costs associated with applying for an equity release loan in France, including the cost of an adviser and a solicitor.
The legal costs in France usually sit at around 1.5% of the total loan amount. In addition to this, the lender and adviser will also charge you a fee, usually sitting at around 1.5% of the new loan amount.
Do I Qualify for Equity Release in France?
If you want to apply for an equity release loan in France, then it is important to understand that there are a number of qualifying criteria and factors involved in applying for an equity release loan.
For example, you must own the property outright and must have paid off the original mortgage on the loan before applying for an equity release loan.
This works differently to the UK, where you are still able to apply for an equity release loan even if you have a small amount of your mortgage left to pay off [3].
In addition to this, the amount that you want to borrow from your home must be below 50% of the value of your home.
Again, this differs to the UK where you are typically able to release a higher percentage from your home. There are a number of useful tools on the market to help you to determine how much you are able to borrow from your home, including an equity release calculator [3].
It is also important to remember that with equity release in France, you have to make monthly repayments of capital and interest.
Therefore, in order to apply for an equity release loan in France, then you will need to be able to prove that you have enough income to pay these payment amounts.
You will have to prove that you can do so without exceeding the debt-to-income (DTI) ratio, which tends to sit at around 33% across France.
In France, most lenders will also make it mandatory to pay back the loan by the time you hit 75 years old. In addition to this, the equity release loan must be taken out for a ‘qualifying purpose.’
Each bank will have different definitions of what qualifies as a ‘qualifying purpose’ but it will usually include things such as home improvements, to purchase a new car or to help loved ones in need [3].
In order to qualify for equity release in France, you must own your own property in France worth at least 200,000 euros. Likewise, you must want to release a minimum of 70,000 euros and be a full time resident in France.
An Example of Equity Release in France
Sometimes, it is useful to use an example to explain how equity release works in France. Let’s say for example that your property is worth 750,000 euros, and you have paid off your initial, traditional mortgage. This means that you would qualify for an equity release scheme in France and would most likely be able to release approximately 50% of the value of your home. In this case, that would be approximately 375,000 euros.
There are a number of costs associated with taking out an equity release loan in France, including legal costs.
Usually, this is always a small percentage of the total loan value, which in this case would come to around 5,625 euros. You can add this onto the loan amount or you can choose to pay this off there and then.
How to apply for a French equity release mortgage
Applying for equity release in France is relatively simple and easy. It is important to remember that you will need to provide proof and documentation that your pre-existing mortgage has been paid off in full.
You will also need to provide proof and evidence of your income, as well as any debt that you might be suffering from. The bank will also more than likely run a credit check on you.
The first thing that you will need to do is seek advice and support from a qualified equity release adviser, who will give you advice on which type of equity release loan is best suited to you, whether that be a home reversion plan or lifetime mortgage.
You will then need to engage a solicitor to do the conveyancing work on your behalf. They will then work with you and your lender to send off your equity release application [4].
In France, you should expect to hear back from your lender and receive your mortgage offer after just 30 days of initially applying for equity release.
Once you have received this, you will then need to sign a sale and purchase contract and return this back to your lender before your lender will offer you a formal mortgage offer.
Pros and Cons Concerning Equity Release in France
When it comes to equity release in France, there are a number of pros and cons. It is important to understand that equity release is not for everyone, and for some people, taking out a normal, personal loan might suit them and their personal circumstances better.
1. Cons associated to equity release in France
One of the biggest cons regarding equity release in France is that you do have to repay the loan whilst you still live. This differs to how equity release works in the UK.
In the UK, you do not have to repay the loan until after you pass away or move into a care home. This means that you will need to undergo affordability checks whilst applying for your equity release loan in France [5].
It’s also important to remember that as with many types of loans, you will need to pay interest on your loan.
This means that every month or year that your loan continues, you will be charged interest on the full loan amount, which will turn into compound interest as the years go on.
Compound interest is essentially interest on interest, which means that each year your total loan amount will snowball.
Luckily, with equity release in France, you have to repay parts of your loan, so the overall loan amount might not snowball or compound as much as equity release loans do in the UK.
It’s also important to remember that taking out an equity release loan is a type of mortgage, meaning that it is technically a form of debt.
When you come to sell your property, some of the proceeds from the sale of the house might have to go towards paying off the equity release loan.
This means that your loved ones and next of kin(s) might not receive as much inheritance as they might have hoped for [5].
2. Pros associated to equity release in France
There are many pros and benefits associated with equity release in France. For example, you get to gain access to a tax free amount of money, whilst being able to remain living in your home.
Depending on the total value of your home, this could be a significant amount of money, although this is limited to approximately 300,000 euros when it comes to equity release in France.
Likewise, there are very few rules when it comes to how you can spend the money you receive through your equity release loan.
The majority of lenders across France will allow you to spend the money you receive on home improvements, on a new car, on a family holiday or on helping your loved ones with house deposits or further education [5].
Finally, by taking out an equity release loan and gifting the money to your children or grandchildren as early inheritance, you will avoid having to pay inheritance tax on this amount once you pass away.
Alternatives to equity release in France
If you want to apply for an equity release loan but simply do not qualify, or are looking for alternatives to taking out an equity release loan, then there are a whole range of other options available to you.
1. Downsizing your home
If equity release in France simply is not for you, then you might choose to downsize your property.
Whilst this does mean moving home, you will be able to cash any profit you make from selling your home and will be able to spend this on whatever you want.
Likewise, downsizing your property might be a good idea for you in the long run as you continue to age.
2. Selling assets
You might also want to consider selling assets as an alternative to equity release in France. For example, you could choose to sell your car or any antiques you might have in the attic
3. A retirement job
Finally, if you are in need of some extra cash later in life, then you could opt to get a retirement job. Usually, this is a part time job which earns you enough cash to cover your expenses, including your food and bills.
It is important to choose a job which you are able to do into your 70s, such as a job at a cafe or local shop. Try to avoid any jobs or types of work that you might find stressful, as this can have a huge impact on both your physical and your mental health as you get older.
What Determines How Much Equity I am Able to Release in France?
There are a number of factors that will influence how much equity you are able to release from your home in France.
This includes your current income, the value of your property as well as your health and your age. How these factors influence how much equity you are able to release is explained further below for you.
1. Your age and health
Your age and your health will have one of the biggest impacts on how much equity you are able to release from your home in France.
The older you are, the more you will be able to release. The banks want to get their money back as soon as possible, so will be more likely to loan you more money if they think that they won’t have to wait twenty or thirty years for it.
Lenders across France will only offer equity release mortgages to those aged over 65 years old, but younger than approximately 85 years old.
2. The value of your property in France
The value of your property will also have a huge impact on how much lenders across France are prepared to lend you when it comes to equity release.
The higher your property is valued, the more you will be able to release. In order to determine how much your property is worth, your lender in France will send someone to the property to carry out a home valuation.
Once the lender has this information, they will be able to determine how much your property is likely to sell for and therefore how much equity you will be able to release from the property.
3. Whether or not you suffer from any outstanding debts
Lastly, whether or not you suffer from any outstanding debts will have a huge impact on how much equity you are able to release.
Your lender will carry out a credit check, to make sure they are aware of any outstanding debts you might be suffering from, although you will also be expected to declare any debt when you first apply for an equity release loan.
In France, you are only able to apply for an equity release loan once you have paid off your traditional mortgage, meaning that you will be debt free in that sense.
However, if you suffer from any other type of debt, or have ever received a CCJ, then you might not be able to apply for equity release in the first place.
Talk to Equity Release Warehouse
If you are considering taking out an equity release loan, then speak to a specialist adviser before making any final decisions. Our team at Equity Release Warehouse are always on hand to offer you support and advice on what your available options are.
Our team at Equity Release Warehouse will even use our equity release calculator to determine exactly how much equity you might be able to release from your home.
Naturally, our team believes that equity release is a fantastic option for homeowners aged 55 or over, though it is not our job to convince you that equity release is the right option for you.
Our team will only ever provide you with the information you need to make the right decision for you.
To speak to one of our advisers by calling us on 0330 058 1579 or by visiting us online at www.equityreleasewarehouse.com.
References
[1] https://www.ageuk.org.uk/information-advice/money-legal/income-tax/equity-release/
[3] https://www.lloydsbank.com/mortgages/equity-release-mortgages/am-i-eligible-for-equity-release.html
[4] https://www.aviva.co.uk/retirement/equity-release/equity-release-process/
[5] https://www.saga.co.uk/equity-release/pros-and-cons-of-equity-release
