Things to be wary of before you follow your French dream.
I have lived in France for a few years, and my husband and I recently bought a home. Increasingly, more Americans are moving to Europe in search of an affordable lifestyle. And, it is understandable. In America, housing prices have increased 47 percent since 2020, and interest rates for a 30-year mortgage are 6.5 percent. With numbers like these, homeownership seems like a dream that keeps getting further away for many Americans. Even for those who have a house Stateside, the prospect of a retirement or vacation home in Paris or Provence is tempting to many. But, buying a home in France taught me that even la vie en rose has its thorns. Here are a few things to be aware of.
Caveat: in both the US and France, every person’s home loan situation is different based on factors including income, assets, and the loan’s time horizon. This is not intended to cover the complexity and nuance of every situation. Nor is it intended to suggest housing in France is all doom and gloom. But I do hope it gives Americans a glimpse into some of the surprising aspects of how France’s regulatory state impacts home buying.
1) No Mortgage Interest Deduction
There is no mortgage interest deduction. Yup, there is no tax incentive for homeownership in France.
In the United States, you may deduct your mortgage interest from your taxes. France stopped this practice in 2011. So, while Americans may be enticed by France’s interest rates of 3 percent, keep in mind that none of that is deducted from the tax bill, and France has among the highest tax rates in the European Union.
It is important to note that some economists oppose the US’s policy of mortgage interest deduction. According to the Federal Reserve of St. Louis, it can encourage the building of larger houses, thereby driving up home costs. “Emmons says the MID encourages the construction of bigger, more expensive homes; this can contribute to higher energy costs, urban sprawl, and fewer funds deployed to non-housing business investment.” In other words, some argue the tax deduction encourages bigger, more expensive houses, making housing less affordable. Either way, in France, there is no tax deduction for homeowners.
2) Notaire Fees
If you thought closing costs and realtor fees were bad, wait until you hear about “notaire fees.” Home purchases in France add on a notaire fee of 7–10 percent paid by the buyer. So, if you buy a 300,000€ home, add an extra 21,000€ for notaire fees.
In France, a notaire is similar to a lawyer in the United States. However, the notaire does not represent a party; rather they ensure that the contract complies with French law for both parties.
A good portion of these fees go to the state or local municipality rather than the notaire themselves. Perhaps think of these fees as “transfer taxes,” or a tax on transferring assets, in this case, a home.
So what’s the big deal? Taxes go to the government which, in turn, provides services for the citizens. Sure, but, keep in mind that these hefty fees can slow down the market. For example, if you paid 21,000€ in notaire fees, that is 21,000€ extra you have to recoup when selling. As such, people are more reluctant to buy and sell, reducing the supply of available homes for purchase.
3) No Pre-Approval Process
There is no pre-approval process with the bank. After a buyer finally finds a home they want to buy there is still a chance the bank will not lend them money to buy the home.
In the United States, generally speaking, the bank pre-approves buyers for their mortgage. This ensures that you, the buyer, know what you can afford, making the process, hopefully, smoother for all involved.
Au contraire in France. In France, the mortgage approval process with the bank begins after you sign an agreement to purchase the home. Often, these agreements, compromise de vente, have a clause that says that if you do not get approved you are not obligated to buy the home.
One common practice is getting a pre-approval letter or certificate of commitment from your mortgage broker, stating that you are serious and have the resources to buy a home. Without a formal “pre-approval” process, this can help.
4) Tricky Financing: Mortgages for the Elderly and Sick
In France, “credit history” and credit scores* as Americans know them don’t exist (there is no French Equifax). Instead, banks mostly base lending decisions on savings, current income, and job history. Mortgages require insurance, which involves completing a health questionnaire. This becomes a barrier for older individuals or those with serious health conditions, whose health questionnaire may suggest to the insurer that insuring them is too costly. And, without insurance, there’s no loan.
Thankfully, legislation was passed that allows home loan insurance applicants to forgo completing a health questionnaire for their mortgage insurance for mortgages up to 200,000€. So, there is some wiggle room for older mortgage applicants or those with serious health conditions.
*There is a national debt registry where things like bankruptcy are recorded.
5) Another Anxiety for Absent Owners: Squatter’s Rights
This, like all laws, is complicated. But, for example, in a secondary residence, such as a vacation home, if someone enters your home unlawfully, it is important to make a complaint within the first 48 hours. If the complaint is made within 48 hours, there is an “accelerated” process during which an eviction notice can be served. If the squatters remain in the home for more than 48 hours, the owner is faced with France’s lengthy legal eviction process.
This baffled me, so I did some digging and found “Citizens, Squatters, and Asocials: The Right to Housing and the Politics of Difference in Post-Liberation France” from the American Historical Review.
The long and short of it is that after WWII, France had a housing shortage and many were forced to seek shelter in abandoned buildings or “shantytowns.” Meanwhile, during this period Western Europe was developing “social rights,” which came to include the right to be housed. As such, French law developed to be more lenient towards those seeking housing, and it included squatters.
Life in France is full of treats, a few tricks, and maybe even a scary surprise or two. But then again, what with increasing costs of living, high housing prices, and interest rates, where is that not the case?