Financing your purchase: deposit, borrowing capacity and true budget

Long before the first viewing, the question of financing shapes everything else: the type of property within reach, the neighbourhoods you can consider, your room for negotiation and the speed with which you can put yourself forward. In Nice, where price levels remain high and the best-located properties sometimes change hands within days, a clear financing plan is not an administrative detail: it is a competitive advantage.

This article quotes neither rates nor amounts: they move quickly and depend on your profile. Its purpose is to set out the principles that underpin property financing, so that you can hold a productive conversation with your bank or your mortgage broker and build a budget you can sustain over time.

Your deposit is the share of the project you fund from your own resources: savings, employee profit-sharing, a family gift, or the proceeds of a previous sale. It is far from a mere formality. In the eyes of the lender, it serves three distinct purposes.

• It traditionally covers the additional costs — notary fees, loan guarantee, arrangement fees and any professional charges — which are not always financed by the mortgage.
• It reduces the amount borrowed, and therefore both the monthly repayments and the total cost of the loan.
• It signals sound financial management: savings built up steadily are reassuring as to your ability to meet repayments.

Does that mean committing every last pound of savings? Rarely. Keeping a safety reserve after completion — for unforeseen works, a service-charge call from the building's management or a personal setback — is part of a healthy arrangement. The right level of down payment is best determined with a professional, balancing a lower cost of credit against a comfortable cash position.

Your borrowing capacity is the amount you can borrow given your income, your existing commitments and the term you have in mind. It is assessed principally through the debt-to-income ratio, generally set at around 35 % of income, including borrower's insurance. In other words, your total monthly credit repayments should in principle not exceed roughly a third of your resources.

That threshold is not the only criterion, however. Banks also look at disposable income, meaning what remains available each month once credit repayments have been met. On identical incomes, a household with no children and a household of four do not have the same disposable income: two applications showing the same debt-to-income ratio may therefore receive different answers. The composition of the household, professional stability, the way accounts are managed and remaining savings all weigh in the balance.

Extending the term of a loan lowers the monthly repayment and mechanically increases the sum you can borrow: this is often what makes a larger or better-located property attainable. But that flexibility comes at a price — the longer the term, the heavier the total cost of credit, and the slower you build equity in the early years. The balance to be struck lies between monthly comfort and overall cost.

Borrower's insurance, which lenders require in practice, deserves particular attention: it accounts for a meaningful share of the monthly repayment and its cost depends on age, health, occupation and the cover selected. The rules allow you to take it out with a provider other than the lending bank, and to switch later on, which opens up genuine scope for optimisation.

When comparing two offers, do not stop at the headline monthly repayment: ask for the total cost of credit, insurance and guarantee included, together with the terms governing early repayment and the ability to adjust instalments.

The most common mistake is to confuse the asking price of a property with the real cost of the transaction. Between the two, several items are added, some arising on signature and others settling permanently into your monthly budget. Anticipating them avoids unpleasant surprises and hasty compromises.

Notary fees

On resale property, notary fees represent roughly 7 to 8 % of the purchase price. They consist mainly of taxes passed on to the State and local authorities, together with the notary's own fee. They are appreciably lower on new-build property.

Bank fees and loan guarantee

Arrangement fees, followed by the cost of the loan guarantee (a guarantor scheme or a mortgage charge), to be built into the financing plan from the outset.

Works and refurbishment

Redecoration, bringing the electrics up to standard, refitting a shower room, energy improvements: obtain quotes before making an offer rather than after. A realistic quote can also strengthen your negotiation.

Service charges

Service charges vary considerably depending on whether there is a lift, a caretaker, communal gardens or central heating. Ask for the most recent minutes of the owners' general meetings and check works already voted through or in the pipeline.

Property tax (taxe foncière)

Payable each year by the owner, this local property tax differs from one commune to another and from one property to another. The amount is disclosed by the seller and should feature in your annual budget.

Insurance and energy

Home insurance, heating and electricity: the energy performance certificate gives a useful order of magnitude for these recurring outgoings.

Removal and settling in

Transport, packing, any storage costs, setting up utility accounts, appliances and small items of furniture: an item that is often underestimated and worth budgeting for in advance.

The true budget is the sum of all of this. In Nice, where the price per square metre is among the highest in France, a few percentage points of costs translate into significant sums: factoring them in from the start prevents you from committing to a property you could only finance on an uncomfortably tight footing.

Before you begin viewing in earnest, approach your bank or a mortgage broker for an agreement in principle, also known as a financing certificate. This document, which does not amount to a formal mortgage offer, states the sum the lender is prepared to advance in the light of your circumstances.

• It sets your budget and spares you from viewing properties beyond your reach — or from overlooking those well within it.
• It lends credibility to your offer in the eyes of the seller, who rarely compares two proposals on price alone.
• It speeds up the process of putting banks in competition and assembling the file once the preliminary contract is signed.
• On the most sought-after properties in the Nice market, it often makes the difference between an offer accepted and an offer that arrives too late.

In a market where studios, one-bedroom flats and properties with outside space or a view are snapped up quickly, the ability to put forward a well-supported offer within days of the viewing is decisive. A well-prepared buyer reassures the seller, and a reassured seller negotiates more readily.

The principles set out here form a framework for thinking, not a calculation. Only a mortgage broker or your own bank adviser can produce a tailored costing, taking account of your income, your professional and family circumstances, prevailing market conditions and any schemes for which you may qualify. Such a consultation is usually free of charge at the outset and will save you valuable time.

Our team supports you on the other side of the project: targeting the neighbourhoods consistent with your budget, assessing the quality of a building's management, anticipating works and securing every stage through to signature. Do feel free to talk your situation through with us, even at an exploratory stage.

This article is general information provided for educational purposes. It is no substitute for tailored advice from a mortgage broker, a banking institution or a notary, who alone are qualified to review your circumstances and provide a binding costing.