A couple of financial start-ups are proposing new ways to allow owners to free capital tied up in French property while continuing to live in it.
Both are using the principle of a vente de quote-part 鈥� selling a share in a property, as opposed to selling the whole property outright 鈥� which can also be used when inheritors do not all agree on a sale.
In this case, the owner of a property can sell part of their share to a third party. The latter receives money for their part when the property is sold, or after a fixed period of time.
One of the new companies, called Merci Prosper, is aimed at property owners over the age of 65 who need cash.
The other, called Vasco, is focused on energy renovation. It offers to finance big projects on the home in return for a part share, which it will liquidate when the property is sold (with the expectation that the more energy efficient house or flat will sell for more than it would have before).
Merci Prosper鈥檚 CEO, Thibault Corvaisier, told The Connexion the company鈥檚 model has been made possible due to the fact the firm has received the 鈥楨sus鈥� label (enterprise solidaire d鈥檜tilit茅 sociale 鈥� a firm officially deemed to be providing a service to the community, in this case to older people on modest means).
Read more: How do I release equity from my French property?
Investor rebate
This allows its investors 鈥� those actually putting up the money to buy the house share 鈥� a 25% rebate on their investments, thus making the proposition more attractive to them. Their money goes into a fund called La Fonci猫re Prosper which is managed by Merci Prosper. It is this fund which invests in buying the home shares, not the individual investors.
Mr Corvaisier came from an investing banking background, and then became a fund manager for a company specialising in viager investments.
Viager is a system in France whereby people can sell their property (obtaining a lump sum plus a 鈥榬ent鈥� for life), while keeping the right to live in it until they die.
鈥淚 realised that viager is actually only really useful to a very small part of the population who do not have children or other inheritors,鈥� he said.
鈥淚t is also rarely equal 鈥� if the seller dies quickly the buyer gains a lot, while if the seller lives for a long time, the buyer is likely to lose on the investment.鈥�
Read more: Viager in France and releasing capital from a French property
Merci Prosper
Under the Merci Prosper system, the company buys a stake in the property, usually between 10% and 50%, paying a cash sum to the owner to use as they wish.
To finance the notaire鈥檚 and other fees, and to compensate for the fact that the owner retains full use of the property, the company applies a multiplier set out in the contract, for example if the seller gets 10% of the agreed property value in cash, Merci Prosper might get an 18% share of the property.
The contract lasts for 10 years and specifies that at the end of the period the seller can either: buy Merci Prosper鈥檚 share at the current market value, sell the property with Merci Prosper getting its 18% share of the proceeds or extend the contract by paying 鈥榬ent鈥� to Merci Prosper on its 18% share. The 18% share is then only paid back once the owner dies, or sells the property.
If the seller dies, the inheritors of the property also start paying 鈥榬ent鈥�, so it is in their interest to sell the property as quickly as possible, giving Merci Prosper its 18% share of the proceeds, or to buy back the 18%.
Another attraction of the deal for homeowners is that they are able to gift the 苍耻别-辫谤辞辫谤颈茅迟茅 (ownership but not the rights to benefit, the usufruit) of their remaining share of the house to inheritors, which means their heirs鈥� inheritance tax bill can be considerably reduced.
Mr Corvaisier said the company鈥檚 business model depended on a dynamic property market, which is why it was concentrating on properties in towns with populations of over 30,000.
鈥淚 am afraid a beautifully restored farmhouse in a remote village in the south-west does not fit, because there is too much risk it will not sell, or will take a long time to sell,鈥� he said.
鈥淏ut we will certainly be interested in a flat in Nice, for example.鈥�
The company started two years ago, raising 鈧�1 million in capital from investors by the end of last year.
By the end of April it had signed eight contracts and it hopes to raise 鈧�10 million of capital by the end of the year and have around 50 contracts on its books.
Investors are a mix of institutions and individuals and can expect a 3% return, as well as benefiting from the right to a deduction of their income tax liability equal to 25% of the value of their investment.
Read more: Tips for Americans considering a French mortgage
Property finance
Financing property in France is different from the mortgage system which dominates in the UK.
There, it is common for owners to remortgage properties to release capital from the property.
In France, however, technically only around 30% of property financing is actually by mortgage (丑测辫辞迟丑猫辩耻别), which in legal terminology, refers to the lender obtaining a legal right against the property if the borrower does not pay back their loan.
Most French property is bought without debt or via bank loans backed by a guarantee (the buyer pays a fee during the purchase towards setting this up) where a third party financial organisation will compensate the bank in the event of buyer default.
Banks are generally not interested in, and can have regulatory difficulty in, offering remortgage type deals.
Two mortgage-based loans do exist, but they are only offered by specialists rather than all banks.
The pr锚t viager hypoth茅caire has to be paid back, plus substantial interest, out of a person鈥檚 estate when they die.
A standard pr锚t hypoth茅caire involves the borrower paying back the capital plus interest over a fixed period, so is less interesting to older people looking to free up capital.
Another alternative, as mentioned above, is a traditional en viager sale where the buyer obtains the full legal property rights but the seller can live in the property for life.
