How to not lose your deposit (French mortgages)

How to not lose your deposit when purchasing a property in France with a mortgage

When purchasing property in France, there are two kinds of deposits, one of which is the difference between the total purchase cost of the property (including taxes) and any mortgage. This acts as security for the bank. The second type of deposit is a form of security for the seller, this is typically 5% upfront and a further 5% if you do not respect the purchase contract, for instance, if you pull out of the purchase without a valid reason or if you fail to make a sufficient effort when applying for a mortgage. The latter part, related to mortgage applications, can lead to a lot of disputes, stress and even the potential purchaser having to pay 10% of the property price to the seller for wasting their time and making them miss out on other potential buyers.

Can you tell me more about this security deposit for the seller, which I could lose?

Yes, to go into specific details, a French property purchase contract will normally contain an “indemnité d’immobilisation” clause, which is normally a payment of 5% of the property price, to be paid to the French notary (similar to a conveyancing solicitor). In the event of a successful completion of the mortgage, these funds will be deducted from the total cost of the property purchase. However, in the event that the property purchase does not complete, there are circumstances in which the seller can ask for this 5% deposit to be paid to them and to also receive an additional 5% of the purchase price. This second 5% deposit is often detailed in the section called the “clause pénale” or the “pénalité compensatoire”.

How is this related to the mortgage application?

In order to avoid paying this 10% penalty, in case of a mortgage refusal, you normally have to provide between one and three refusal letters from French banks, depending on the wording of the mortgage clause in the conditional purchase agreement (either a compromis de vente or a promesse de vente). The difficulty is that French banks are not obliged to provide you with mortgage refusal letters and if your mortgage fails at the first hurdle then it is unlikely that you will receive a mortgage refusal letter, they are normally provided when a mortgage is refused by the underwriter, once the banker has also approved an initial look at your file. Thankfully, with the mortgage changes announced in February 2024, it should be more difficult for banks to avoid refusal letters.

What can I do if I can’t obtain the minimum number of refusal letters required?

You can normally get your deposit back if you can prove that you were not negligent and that the applications were made. Unfortunately, some sellers and even notaries (notaires in French) will insist upon a refusal letter, in which case threatening legal action is normally the best case, unfortunately.

Can you get pre-approval or a decision in principle for a mortgage in France?

Any kind of pre-approval or decision in principle is non-binding and for this reason, many banks actually avoid all words similar to decision in principle (accord de principe) or pre-approval. Credit scores are far less important in French banking, and in many cases the bank won’t ask for your credit score at all, so obtaining a pre-approval based on your main financial details and your credit score doesn’t really exist. The closest thing you can normally obtain to a decision in principle or pre-approval is a personalised mortgage quote and calculation, known as a simulation personalisée. Many sellers will also insist upon a “simulation personalisée”, or a letter from a mortgage broker, before they sign any conditional purchase agreement with you and some will even ask for this before you visit their property.

Summary

This is a very sensitive subject that is not spoken about often, the best way to protect yourself is to always have a written trace of any mortgage applications and refusals. If a banker calls you up to tell you that your mortgage application has been refused then ask for this in writing as a refusal email will often suffice. Always make sure that you apply to at least the minimum amount of banks stated in the compromis or promesse de vente.

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The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. Additionally, the author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, this article is dated and is based on legislation as of the date. It should be noted that legislation changes, but articles are rarely updated. Sometimes a new article is written; so, please check for later articles. Additionally, check for changes in legislation on official government websites. Finally, this article should not be relied on in isolation.

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