In our latest post, we outline the typical costs involved in buying a luxury property in Paris and the Côte d’Azur.
Photo Credit: Anatoli Styf / Shutterstock
Buying a luxury property does not only involve the cost of the property itself, but also a series of additional fees that are worth evaluating before you decide to go ahead with a purchase.
Here is our summary of the extra costs, taxes and fees:
1. Borrowing fees
If you decide to take out a mortgage, in addition to selecting the mortgage provider you also need to set the duration of the mortgage and the interest rate.
Interest rates
You can choose between a fixed-rate mortgage with which the monthly repayments are fixed and will remain the same throughout the whole period, or a variable-rate mortgage which fluctuates according to the financial market.
Variable rate mortgages increase the fix margin of the lending establishment (the “Spread”) by a variable rate which is generally calculated using one of the following reference rates:
- Euribor (or Tibeur). This is an interbank reference rate used in the Eurozone and is the most common form of reference rate. It is calculated from the average interest rate offered in the banking market at a particular time. It is published daily by the Central European Bank from rates provided by a panel of European banks.
- Key interest rate from the European Central Bank (ECB). This is a rate is determined by the ECB which varies periodically.
Certain banks offer security by proposing capped variable rate mortgages, in other words a maximum limit is established.
We have asked John Busby, director at French Property Finance, an opinion on the deals currently available in the French mortgage market:
“If you decide to opt for a French mortgage to fund your purchase you can expect to be able to borrow up to 70% or 80% of the price of the property. For larger loan amounts and for borrowers from non-EU and non-Commonwealth countries, or for those seeking interest only mortgages, 70% will the most usual maximum loan to value. Many people opt to use a French mortgage to finance their property in France as it is tax efficient, minimises currency risk and French mortgage products offer excellent long term value. At the time of writing you can find a 20 year fixed rate mortgage at 3.60% on a repayment basis or a 15 year fixed rate mortgage at 4.30%, with variable rates from 2.30%. Versus a cash purchase the additional cost to you will be in the region of 1.25% in terms of mortgage registration tax and fees, though this is more than offset by the tax savings. In the case of a 20 years mortgage at 4% each €100,000 you borrow will cost in the region of €600 per month on a repayment basis and €333 on an interest only basis”.
“For those who wish to have a loan for tax reasons reducing the equity position in the property to avoid French ISF wealth tax, for those looking to achieve greater flexibility or not wishing to declare their financial situation, private banking arrangements can be sought. These arrangements often entail a loan facility which is covered by a supporting portfolio of bonds. For example for a loan amount of €1M you might expect a 1.5% interest rate over an index on a variable interest only basis with a supporting bond or portfolio of €1.2M lodged with the bank”.
Read here an article posted by Melanie Bien on why wealthy borrowers are turning to the private banks.
Additional Costs
Death and Disability Insurance
This is always required by banks, but you can take out insurance with another company as long as it provides the same level of guarantee as proposed by the bank.
The cost is about 0.3/0.4% of the total amount borrowed and this it is doubled if the mortgage is in two names. This sum is added to the mortgage payments.
Mortgage arrangement fee
This fee varies from one bank to another and it is up to 1% of the total amount borrowed. For high amounts a cap is applied.
2. Notaire Fees (Acquisition Costs)
They can be divided into three parts:
- Taxes paid to the public Treasury
- Notary fees.
- Disbursements, or reimbursement of costs incurred by the notaire such as the obtaining of land registry certificates, planning permit reports and so on.
3. Miscellaneous Costs
Local taxes
Local taxes, which vary from one municipality to another, are due for the entire year on the 1st January. However, you can expect a clause in the sale agreement which specifies the division of this tax between the buyer and the seller depending on the acquisition date.
Property tax & Council tax
All property owners must pay property tax which depends on the value of the property The tax must be paid whether the property is a principal residence, a second home and/or if it is being rented out.
Similarly, you must also pay council tax, a local fee which is required from all taxpayers who are in possession of a furnished property. Council tax, like property tax, is calculated by the ‘valeur locative cadastrale’ taking into account the property and any additional areas (garage, parking spot, courtyard). The applicable tax is determined by the local authorities who receive the tax.
Photo Credit: Samuel Borges / Shutterstock
Condominium charges
If you have chosen to buy an apartment, you must pay condominium fees to the building administrator. The fees are comprised of two categories: general charges relating to the maintenance and administration of common areas (cleaning, gardening, ect…) and special charges relating to common amenities such as a lift, central heating and so forth.
It is a good idea to ask the building administrator how much these charges will be and you should also consult the minutes of recent condominium meetings which may detail the costs of any upcoming renovation work.
Wealth tax (ISF)
It is an annual direct wealth tax that is payable only by taxpayers with a taxable net-worth greater than a threshold value (that was equal to €1.3m in 2013). Less wealthy tax payers are exempt from this tax. The calculation applies to tax declarers, meaning that it can apply to a grouping of two individuals. Each declarer pays a % (which varied between 0,5% to 1,5% in 2013, growing with the net worth of the declarer) of the exceeding wealth.
It is important to underline that the asset value is calculated not on the sale price of a property but its value at the time of declaration. In addition, the taxable assets are different depending on whether you live in France or abroad. If you live in France it is based on all of the properties you own, whether located in France or elsewhere; on the other hand, if you live abroad only properties that you own in France, subject to international agreements, are considered by the ISF.
The valuation of the property should be as precise as possible. To do this, the tax office recommends three methods:
- Valuation ‘by comparison’: this is the preferred method of the tax office. To do this it is necessary to research similar property sales by taking into account the property type, geographic location, specific point in time and any other main characteristics that can influence the price. The ‘direct comparison’ entails deducing the price according to the asking price of other properties, this method is advisable if the comparable property has strong similarities and is found in the same development. ‘Indirect comparison’ on the other hand, only takes into account the surface area.
- Valuation ‘by revenue’ is used when assets are composed of one or more units are rented out. In this case, the capitalization rate (equal to the yield) which is taken into consideration.
- Valuation ‘by previous value’: this involves determining the present market value by using a price which has been expressed or a valuation which has been carried out for a past transaction or contract of the same property.
A private wealth advisor will also be able to indicate the cases in which you are exempt from the tax and how to pay as little as possible.
For more information please consult the following government document on the subject.
You may also want to take a look at our overview of property investment strategies, here.
4. Agency Costs
Estate Agency Fees
If the purchase is concluded by a estate agent, you will also have to pay the necessary commission costs as detailed in the signed sales agreement. By law the agent must clearly communicate the commission to the client before the start of the buying process.
Generally the commission is about 5 % but it can fall anywhere between 4-7% . There are also agencies that use a sliding scale depending on the cost of the property; if the property is more expensive, the commission % is lower.
Buying Agent Fees
The French luxury property market is renowned for its exclusivity and the high number of off-market transactions; buying agents are often hired to find the most hidden gems on behalf of their clients (see an article on the rise of property finders in Europe here).
The majority of buying agents tend to split commissions with selling agents so that choosing a buying agent comes at no incremental cost to you. There are also buying agents who charge a separate fee to stress their independency or because they claim they can offer access to highly exclusive deals. Paris, which traditionally has a more liquid and competitive market, represents one of the few exceptions; in the capital most property finders charge between 1% and 2% on top of estate agency fees.
If a buying agent finds a property that is not represented by an agent then they generally charge the full intermediation fee, around 5% in most cases. For further details, please consult our previous post How to Buy a Luxury Property in Paris and the Côte d’Azur-Part 2.
You can find many prestigious properties in Paris, the French Riviera (Saint Tropez, Cap Ferrat, Cap D’Antibes, Cannes, Mougins and other exclusive locations), Provence, the French Alps (Courchevel, Megeve, Chamonix, Val d’Isere, etc…) and other parts of France on www.teatrium.net. Our Property scouting team can also put you in touch with top buying agents in France and elsewhere in Europe.
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