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Equity release


oglefakes
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Has anyone ever done the following in order to release equity and purchase an additional property with a French bank?

1) Buy home (in need of work)

2) Renovated it and improved the value (i.e. real improvements, not paint etc)

3) Used the 'increased' value in lieu of a deposit on a second property.  i.e. the bank would have a financial interest in both homes.

4) Purchase second property

I have done this in the UK with success. Advice appreciated.

Thanks

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Are you intending to move to France? 

Do you know anything about the housing market (old properties) here?

I think you'll face some pretty drastic CGTs either way. No doubt there are routes to avoid them.

Edit; Not meaning to be abrupt, it's just that things aren't the same here. Properties can be cheap, but you can't buy and sell quickly after renovation, and with big profit, (if any) unless you have detailed knowledge, and have used every last ounce of it.

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[quote user="Tresco"]

Are you intending to move to France? 

Do you know anything about the housing market (old properties) here?

I think you'll face some pretty drastic CGTs either way. No doubt there are routes to avoid them, but I'm loathe to say more for now.

Not meaning to be abrupt.

 

[/quote]

Tresco, I have been reading the forum for sometime now, so I understand about licensing of trades, the reluctance of many people to move frequently (compared to the UK) etc

- Yes I am

- Yes and no. I have worked on old properties, but not in France. I have the skills to get a large portions of work completed myself.

- Yeah, it's more of the finance/tax side I am concerned with.

BTW, I have seen a few 'city' flats in need of renovation and these are the sort of properties that I have had plenty of success with in the past, so long as the area is decent, with plenty of work (for locals) nearby. I wouldn't just focus on the 'gite' etc market.

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Hi. I just edited the last part of my post, while you were replying.

Have you sussed out the difference between the tax reclaimable/dicountable for someone doing DIY and a registered tradesperson?

Really I'm the least knowledgable person.

If you do a search in the dinky box, top right of the page, you may find previous discussions with more knowledgable people.

Try 'CGT' for a start. [:)]

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Property development / speculation is not something to enter into lightly in the French fiscal system.

You will be subject to VAT (19.6%) of the profit as well as income tax.

If you are non resident you will also face a witholding tax of 50% of the profits.

Seek professional advice first!

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Those who bought more than about five years ago and didn't have to do a complete rebuild might disagree, but I do know exactly what you mean Cooperlola. So many who are wanting to sell are basing their asking price on what they have spent in total, plus a bit of profit, and they find themselves way over the top.

On the other hand, we must be an exception, as our house was all 'done' when we moved in. But having a nice house is, to me, much more important than any increase in paper value.

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With you all the way Will.  Look on any investments in time and money as improving you home and lifestyle and you'll be fine - I don't begrudge a penny I've spent on this place as it's slowly turning into my dream house.  That's good because it's what I want.  However, if I had been looking at it as an investment, I'd have been sorely disappointed.  This was never our plan so it's fine and like you, it was a perfectly habitable property from the start.  The O/P just needs to beware if any increase in value is necessary for the fulfillment of their plans.
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Yep, I know France isn't like the UK when it comes to Buy - Paint - Sell - and make 10K, but that isn't the plan.

After establishing a primary residence, I'm looking to do 'whatever the market needs' - within reason - be that a suburban home, potential gite, bedsit in town or even a non residential; a shop etc. 

One thing that I have noticed, and it may be a perception rather than reality, is a number of barns and farm houses which appear (I may be wrong) to have no renovations other than a "New roof".   I wasn't sure if there was a profit, albeit one that may take time to see, wherein 'developers' buy a shell, frame/roof tile, then sell for a small profit.

I would just be surprised if so many people got their finances wrong to the point that the roof was the only thing they could afford before running out of cash. Then again...

That said, I have seen what appear to be the 50% complete renovations, which genuinely do appear to be dreams gone wrong.

With reference to the original post, are the banks open to using a mortgage free home as a deposit for future purchases?

thanks

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My understanding is that many of the barns/farms you refer to may very well be the result of several members of a family inheriting a propery between them and failing to come to an agreement as to what to do next.  Thus they can stand empty for years.  The thinking seems to be that if at least the roof is in reasonable nick then it will minimise deterioration of the property.
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We are in the process of taking out an equity release mortgage (to complete some renovations on our money pit, sorry, house) and at no time have we actually been asked what the money is for, so, in theory, you should be able to release equity to do whatever you want with it!
If you want the details of who we are using, I can PM them to you, if you like?

Chris

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My friend tried to get some equity out of a 2nd house here that they had renovated and was on the market. The banks wouldn't hear of it. No work = no income = no loan, and the only way she could free any capital was to mortgage it and then she couldn't sell it...

Banks can be funny about loans too - if you want a loan to go towards a house purchase it has to come under the mortgage rules, even if it's temporary (like a bridging loan) and under their limit for holiday loans!

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Hoverfrog, I guess its the same as anywhere else. i.e. often a case of semantics when dealing with the system; same book different cover, when asking what the money is for.

About four years ago I owned a property in the UK outright. I tried to use it in lieu of cash to buy more properties. A small regional bank said "No problem, sure we can help" They would declare an interest in this property (so I couldn't sell it) and I would only need a 25% deposit for all future properties.  So in otherwords, they were plonkers and wanted an extra house as security. I went to RBS who were great. I bought several other properties using the original one as a 'deposit'.

What was that quote? "If you don't get an answer you like, keep asking" [:)]

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i am thinking of equity release as well , same problem with income proof from gites etc but bought the place outright a few years ago and if there is a broker or specialist finding ways around the french govenments draconian banking dictates then please let me know.

 

steve 

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I guess that they think if you have a 'normal' job and a normal home like 3 bed semi, complete with mortgage and go to normal places on holidays, such as Alicante, for two weeks a year you fit all the parameters for a 'low risk' loan. i.e. in their opinion you are predictable and safe.

If on the other hand you have decided to forgo the 'security' of working for some FTSE 100 (or the council for that matter) for a 'radical' lifestyle without guaranteed  income AND want to borrow their money, then you are a risk. After all, you must be a bit unstable to get into this situation in the first place [:P]

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I would dispute that - after all, surely having bought your home outright means more of it (well all actually!) belongs to you rather than if the mortgage company had to have its share? In theory this would mean that you have more of an asset.

I appreciate that banks like to pigeonhole people into categories, but they do need to get up with the times. People are indeed more likely to be 'unpredictable', but it is no longer the norm that someone takes a job and sticks with it until retirement - except perhaps here in France where they still do that!

I'm working here in France, and working or not was not an issue with my french bank - the issue was what the loan was for. They would lend me money for a car, a holiday, whatever, but not for a house. They even say on their publicity that a 'personal loan' can be for what you want it to be, but then turned round and said "oh no, if it's for a house it has to be a mortgage".

Actually they would've eventually lent me the money (when I showed the manager online in her office that I had more money than the value of the loan in my UK accounts) but this was just in principle... it would've had to go to higher authority. My issue is that had the loan been for a holiday the manager would've had the say-so to allow or refuse, but as it wasn't she didn't have.

I only wanted the loan because I couldn't shift that much money into France quick enough as my UK bank requires one to go into one's own branch to request international transfers, and I couldn't go to the UK to do it as I was working!!

I would've thought that the ability to repay a loan would've been the first criteria for any bank, yet they have different rules depending on what you want the money for! This is what doesn't make any sense to me.

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Hoverfrog, I didn't mean "You" I mean 'one' in the broadest terms.

Bank logic is not the average persons logic. Having worked for a few banks, I can say that with confidence.

As an example, if, say two people (Bill & Mary) each buy a home for 100k. Bill has a 40k mortgage and Mary a 90k one.

Both Bill and Mary loose their jobs and have trouble making the monthly payment. Who gets their house repo'd first?

Bill.

As it is more risky to try and sell Mary's, afterall, she may have a tantrum and smash every window on her way out the door for the last time, or take the kitchen. (which I have seen)   So, sorry Bill as a lower risk, you loose.

Again, this is bank logic, not everyday punter's

Cheers

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you're right, bank logic is not the same as the average person's :)

I can understand why in your example Bill has his house reposessed 1st (although without the explanantion I might have had problems!)

I really do not understand why they can lend you say 10K, then make different demands depending why you wanted it.

Surely if they decide you can afford the loan the money should be yours to do with as you see fit? And why are the more exacting clauses for when you want to borrow the money for something where you will end up with an asset and not for when you borrow for say a holiday which only leaves you with a fading suntan???

As an 'average' punter I would expect the bank to be more willing to lend me money for something concrete, that lasts, that I could sell if needbe, rather than something that's gone when it's paid for.

There has to be a bank logic for this, but I can't see it.
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