Luxury Real Estate

By: Nicola Christinger of HomeHunts

Most people are uncomfortable with debt and there is clearly nothing wrong with taking such a prudent approach to your finances. However when it comes to buying a property in France it often makes sense to have a mortgage even if you don’t actually need one in order to complete the purchase. Tim Yates of Spectrum IFA offers some invaluable advice and if any of the following descriptions applies to you then you should certainly consider taking out a mortgage.

1. You are buying the property as a second or holiday home and don’t intend to live here long enough each year to be tax resident here. 2. You intend to live in France permanently but are not doing so as yet and your assets are currently outside France. 3. You have children either from a current or previous relationship. 4. Your capital is in a currency that has weakened against the Euro such as Sterling. 5. The property you are going to buy will generate an income by either being rented out or you intend to run a B&B.

The rationale for having a mortgage essentially comes down to three things – minimising your French tax liability, maximising your investment return and giving you choice.

French tax

If your assets exceed €790,000 you pay wealth tax here. However if you are not tax resident here then it is only based on your French assets. Furthermore, if you move here permanently then for the first 5 years after arriving you still only pay wealth tax on your French net assets. It makes sense therefore to keep your French net asset position to a minimum by having a mortgage.

If your property is going to generate an income you will pay income tax on it in France regardless of whether you are permanently resident here or not. If you have a mortgage you can structure it so that you can offset interest payments against this income for tax purposes.

Investment return

The cost of borrowing is historically low now and is not going to increase until the economy recovers. It makes sense therefore, from a pure investment perspective, to retain your capital and continue to let it work harder for you. If your capital is in Sterling, for example, given its relative weakness you will want to keep it in Sterling until the currency recovers. It doesn’t make sense to use it to buy a large quantity of expensive Euros to buy a property. Property, as an asset class, is illiquid and can be expensive to maintain. We buy it because we either want to use it and enjoy it or as an investment (or both). From the investment standpoint asset diversification is key so you shouldn’t have “too many eggs in one basket”. A mortgage allows you to spread this risk if you are otherwise too exposed to property.

For more advice on financing your French property purchase please contact info@home-hunts.com