Not a Month goes by without people asking me about equity release. This is very popular in the UK but not so much in France until now! This is probably because the property market in France is very different than the UK and properties are more seen as a business and a way of making money whereas in France we see them as place to live in! In France it is called a “prêt viager hypothécaire” and it is basically a loan against your property that is only repaid on the sale of the property after your death (or while you are alive). I will explain in what case it could be used for, who can be entitled to it and how it works.
- What are the most seen cases for a prêt viager hypothécaire: This is mostly use in those circumstances: You need to improve your house or need a lump sum for a new car or an unforeseen expense, you need to finance the retirement home fees, you want to give some money to your children or gran-children and don’t want them to wait until you die before they can get some and sell the house or simply you need some cash to improve your living standards. Most people encountered are people that have no children or don’t want their children to inherit or have children that are well off so don’t need to inherit!
- Who is entitled to it: Any French resident above 60 years old who is not registered as a professional. This is because this can no be used to finance a business. Obviously, you need to own a house in France! You can be part owner but then the loan will only consider the value of your share of the property. The house must be a “normal house” meaning not a Chateau! This is because it’s not easy to sell so too risky for the bank. Note that the house must be in OK condition and must be kept that way during the loan.
- How does it work: Basically, it is based on two criteria, your age and the value of your property. The older and the more expensive your house is the more money you can get!
It is based on life expectancy so a man who is 75 years old and owns a house worth 150 000€ would get an amount of 50 250€ whereas a woman of the same age and same house value would get 44 550€. That is because woman live longer! Another example of a couple owning the house together, she is 71 and he is 75, the house is worth 150 000€, they can get 34 500€. The valuation of the house is done by an expert from the company who gives the loan. You can do whatever you want of the money and the money is only repaid (plus interest) on your death or if they are two of you owning the house, on the death of the last survivor or on the sale of the property (while you are alive). If the loan has above the value of the house, bad luck for the company that did the loan. If there is some money left, it goes to your beneficiaries. Your beneficiaries will never have to pay anything even if your loan has gone above the house value which could happens if you live a long time!
- How much it cost: The expertise cost 600€ but is only payable if you don’t do the loan or if the loan is refused. Then the yearly interest is 4.80% and there is a set up fee of 2.5% and “hypothéque” fees (mortgage fees) which depends on value of the property. Example, a woman of 71, house value at 150 000€, the amount accorded is 37 800€ but after the mortgage fee of 919€ and the set-up fees of 2.5% so 3750€, she will get 33 131€. The interest of 4.80% accumulate on the loan so only payable on your death (taken from the sale of the house). If you decide to sell the property before you die or simply reimburse the loan before your death, there is a penalty fee of 1 and 4 month interest depending on how long the loan has been running.
- What is the next step: Simply let me know your date of birth and your idea of value of property and I’ll let you know how much you can get and if it is possible to do. Note that you will then need a meeting with our partner bank and with your Notaire. Both will have to make sure that you fully understand the process and check that you are doing this for yourself and not someone who want to take advantage of you. Yes, we had a case when an old lady wanted to please our nice neighbour and buy her a car!! Clearly a case of “abus de faiblesse” which is “abuse of elderly weak person” which is criminal, and, in this case, we refuse. Note that the process is long, count 3 Months so if you need some money straight away, forget it.
- After your death: Whoever inherit your property can either pay back the loan and keep the house or sale the house and keep what is left between sale and the loan due. Your heirs have 6 Months to sale. If they have not managed to sell it by then, the bank will take over the sale of the property (your heirs still get what is left). If the loan due is superior to the sale price, it’s just bad luck for the bank. Your heirs will never have anything to pay.
Conclusion: This is not for everyone! And must be thought about with great care. This is why the process has to be approved not only by the bank but also your Notaire. But I know this quite common practise in the UK and I can understand why, so don’t hesitate to contact me for any further information on this subject.
And remember to check out our web site www.bh-assurances.fr/en for all my previous articles (“practical information”) and register to receive our monthly Newsletter. You can also follow us on Facebook: “Allianz Jacques Boulesteix et Thierry Hatesse”
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