Lending in France – a challenge or opportunity?
Clint White is director of Fiduciam
We hit the headlines recently for lending a €5m bridging loan on a French property. It became news because trying to find lenders that will lend on French property for a short or even medium term is a bit like trying to find the Holy Grail.
While France is one of the most popular countries for Brits to invest and buy a property, accessing additional finance over that property can be challenging at best. Foreign owners of, or investors in, French property often find it incredibly hard to obtain leverage over their property or to get finance for their French development projects.
The reasons for this are multifaceted: a French bank typically does not have sufficient credit and financial information about the borrower to be able to grant a loan; their criteria and lending policy just won’t allow it. Meanwhile, the UK bank, or bank in the jurisdiction of the borrower if from a different country, has information on the borrower, but typically does not know how to take security in France.
This problem has become more acute over that past few years, with several international private banks closing their French lending operations, usually because French lending is not a core activity for them and they want to simplify their operations.
Therefore there are only a few solutions left for the UK investor looking at French banks: Credit Foncier is a local specialist mortgage bank who lends to foreign owners, but only for loans sub €1m.
Some French private banks, such as Société Générale, will do the larger ticket loans but only if the borrower moves his or her private banking portfolio to them or places a large deposit with them. This precludes the many entrepreneurs who have invested in projects and small companies rather than listed stocks and mutual funds, as they will not have a private banking portfolio. What’s more putting a deposit with your lender partially defeats the purpose of the loan.
These requirements also mean the leverage ratio on those private banking loans is not very attractive, as some borrowers noticed the private banks later blocking their private banking accounts to recover the loan from them.
Bridging loan wise, there are almost no international lenders to meet the demand of these borrowers, which is why a UK-based lender finding a solution becomes such a talking point. What is essential is a lender who can be flexible in terms of the jurisdiction of the borrower or principal and lend in a variety of home countries with the security being in France.
The Fiduciam solution is basically a traditional bridging loan with no strings attached. An innovation of the loan is the fact Fiduciam can take security over the shares of the property company rather than having to take a mortgage over the property itself.
As French real estate investors know, taking a charge over the property itself is expensive for the borrower both for stamp duty and notary fees which are usually 1.6%. By taking security over the shares of the PropCo the borrower doesn’t incur these, which means that they either save money or can afford to borrow more on their next development.