How do we arrange financing to buy an apartment in Paris or London?

June 29, 2009 1:06 PM

How do we arrange financing to buy an apartment in Paris or London?

Hi!

We are non-EU residents and will like to buy an apartment in either Paris or London.

We plan to use the apartment for a few weeks a year, when visiting Paris and/or London. For the rest of the year, the apartment will be available for short-term rentals, e.g., to tourists.

We don't have bank accounts in the UK, France, or any other european banks. We also do not have bank accounts with any global investment or commercial banks, e.g., Goldman Sachs or Barlays.

We do have good credit (state-side), good jobs (state-side), and a nice home (servicing mortgage).

We plan to put a downpayment of about 20%-33% for the apartment we plan to purchase in Paris or London.

Our questions: How can we finance this apartment? What types of banks should we enquire at? What are the logistics involved to secure financing? What type of documentation is required? Do we need to put up collateral, and in what form? What types of fees and interest rates should we expect in such financing?

We appreciate your insights to any of these questions. If you have previously done something similar, we will love to hear your experiences too.

Thanks! :-)

posted by jchaw to home & garden (5 comments total)

In France you look at things sort of backward. To do much of anything you need a French bank account and you can't just walk in and open one: instead you must be referred by someone. In my case the real estate agent referred me. Next, you consider carefully your will. The code Napoléon specifies the division of land to your children - this is why in, for example, Bourgogne, individual -rows- of a vineyard are owned severally. It may be beneficial for you to consider forming an SCI which holds shares in the property. To figure this out you find a notaire, who is "the disinterested representative of the State in matters touching its interests". A notaire who speaks English is not too hard to find. You must consider the notaire truly impartial because they are, and let him/her know your situation. S/he will know what questions to ask you. I have an SCI with my partner in the place.

Once you have figured out how you will hold the property you arrange for financing with a bank, which is not necessarily the bank where you have made your account. The financing rules vary; you will likely find that the bank is much more conservative than e.g. an American bank. If you are older, the term of a mortgage will be limited to their assessment of your earning years so no hard and fast rule's available. In my case my mortgage runs 15 years and required a down payment of about 40%.

You are liable for two taxes: "taxe fonciere" and "taxe d'habitation". These are based on land and property value and are nominal in comparison with most American land taxes. If you have an SCI there is an additional tax which is based on revenue from rental, if you have any; if you don't have an SCI you pay income tax on such income.

I bought my property in Languedoc. There might well be some regional differences but I do not know that. Email if you wish.
posted by jet_silver at 1:50 PM on June 29 [1 favorite has favorites]

Banker, American, living in Europe since 1997 and I have owned property in Portugal while residing in England (my primary country of residence). I'll try to address your original points the in same order you raised them.

"We are non-EU residents and will like to buy an apartment in either Paris or London."

Ok, you'd better decide which country first, as since you'll (most likely) be borrowing either Sterling or Euros and paying back Dollars (unless you can arrange a mortgage product where you pay back Dollars even though your debt is in a foreign currency), you'd essentially be taking a view wrt the US Dollar and the foreign currency you're borrowing in. If the US Dollar craters vs the currency you've borrowed in your monthly payments (debt service in finance speak) will spike. Borrowing in a foreign currency to finance debt wiped out lots of middle class folks in Iceland. So such activities are clearly very, very risky, even in the best of circumstances.


"We plan to use the apartment for a few weeks a year, when visiting Paris and/or London. For the rest of the year, the apartment will be available for short-term rentals, e.g., to tourists."

While this looks nice on paper you'll probably find this won't matter much to the bank as you will be the ones responsible for paying back the mortgage. In other words, this is a personal mortgage, not a business mortgage you're looking for. If you structured this as a business transaction, with an appropriate business plan then the lender would look at this forecast, short term cash flow in the appropriate manner. As is this doesn't really count.


"We don't have bank accounts in the UK, France, or any other european banks. We also do not have bank accounts with any global investment or commercial banks, e.g., Goldman Sachs or Barlays.

We do have good credit (state-side), good jobs (state-side), and a nice home (servicing mortgage)."

The US side credit history and income won't help much here as when one moves to the EU their credit history effectively starts over. What would help you out is a retail account with a global bank. I'm with HSBC London myself, and they definitely offer cross border mortgages, however within the EU. Not sure how non EU would count here.

I did notice that HSBC recently started offering cross border products, targeted at Americans who wish to purchase in Mexico. Maybe direct your attention south of the border?


"Our questions: How can we finance this apartment? What types of banks should we enquire at? What are the logistics involved to secure financing? What type of documentation is required? Do we need to put up collateral, and in what form? What types of fees and interest rates should we expect in such financing?"

As mentioned, I'd suggest asking HSBC (or an equivalent bank) first. Logistically, purchasing a flat in Lisboa wasn't much different for me than acquiring a flat in London, and additional documentation was minimal as the account relationship was already established. Minimal down payment ("collateral") for a (rental / investment) flat in Lisboa was 25% cash, but this is highly variable (local property market value forecasts, individual credit rating, the lenders local book, etc). Interest rates ran about 2.5% above my primary home mortgage rate.
posted by Mutant at 1:53 PM on June 29 [2 favorites has favorites]

I know very, very little, but I do know that my parents own a house in France as part of an SCI, and they can't rent it out to other people, but that might be the way theirs is set up.
posted by Helga-woo at 2:59 PM on June 29

If you are buying in France and are looking for French financing, the best thing to do is to consult a local mortgage broker who is familiar with the needs of foreign buyers. Your real estate agent can get you in touch with one. Your credit history outside of France will not really count for much, especially now when all banks are tightening their requirements. Also, it seems that the French banks are no longer lending for houses or apartments that are meant to be used *primarily* as holiday homes (gites), so it may be best not to mention that you won't be there most of the time and using your place in that way.

You may want to look as possibilities for financing your holiday home purchase in your own country - though this may be difficult these days too.

Have you actually tried out living in Paris or London for a few weeks in a rented apartment yourselves, or is this more of a dream thing after a short trip? (I mean, to me, Paris and London are very different places, so the fact that you are either-or on those to places makes me think that you might just be in the dreaming stage. No offense meant - I've been there myself.) I would strongly recommend trying it out first because living somewhere for weeks at a time is definitely not the same as a short holiday there. Rent an apartment, live there, doing your own cooking and cleaning and laundry and whatnot for a month the next time you're in one of those cities, and decide if it's really for you.
posted by thread_makimaki at 3:25 PM on June 29

There used to be adverts on the London Underground proclaiming that you could buy a hotel room, which would be yours for (x) number of weeks and then the rest of the time the hotel would rent out that room for you, earning you an income.

There's a ye olde article about it on thisismoney.co.uk if that helps.
posted by almostwitty at 6:43 AM on June 30