Carte Financement has helped non-residents finance their projects for over 10 years. Unfortunately, it is increasingly difficult to find appropriate solutions. It is becoming harder to obtain a non-resident mortgage loan. Lending to non-residents has always been more complicated than lending to residents. Why is this?
Mortgage loans are mainly loss leaders
Mortgage loans have always been a loss leader for banks. Banks can gain new clients by financing home purchases at the lowest possible interest rates, with little or even no margin. The sale of other banking products such as means of payment, savings products or insurance brings bigger margins that make the client account more profitable. Non-resident clients live abroad and use banking products issued in their country of residence. It is therefore much harder for banks to recover the margin lost on a home loan by selling other products.
It is harder to identify and manage credit risk
It is more complicated to prepare a non-resident mortgage loan’s application. Documents are often in a different language, regulations governing employment contracts are not the same, tax aspects are different, and if the client is self-employed, the bank will have to understand the company’s tax documents and business environment. Mortgage loan volumes have been high in recent years. According to Crédit Logement, annual loan production increased by around 50% between 2013 and 2019, rising from €128 billion to €189 billion (excluding loan renegotiations). These volumes are difficult to absorb for banks, and the situation is not favourable for non-residents. With such high lending volumes, banks are in a stronger position to choose their clients and focus home loan origination on the most attractive client segments.
What about KYC? How is this important for non-resident mortgage loans?
Understanding KYC (Know Your Customer) requirements is essential to comprehending the non-resident home loan market. Banking regulations have tightened considerably in recent years. Following scandals involving tax avoidance, fraud and terrorism, international banking regulators increased the requirements for banks to know their clients. Banks must meet a number of obligations and set up systems to ensure that their clients do not commit tax or financial fraud, money laundering or terrorist financing, etc., or risk incurring heavy financial, administrative or criminal penalties. The ACPR (French Prudential Supervision and Resolution Authority and Tracfin monitor banks and financial transactions. Banks must report any suspicions and actual cases of fraud. A number of checks are needed just to open an account for an individual or a business. Obviously, these processes are even more complex and difficult for international clients. Banks pay very close attention to a client’s country of residence before granting a loan, and will not even consider applications by clients in some countries.
The physical distance
While a few banks will open accounts and issue mortgage loans online, most still require their clients to visit their branch before granting a home loan.
Fewer banks are offering non-resident home loans
In the past ten years, many banks or bank departments serving non-resident clients have closed:
- Crédit Immobilier de France (CIF), whose subsidiary BPI (Banque Patrimoine & Immobilier) regularly served international clients, ceased trading in 2013
- GE Money Bank changed ownership in 2017 and became My Money Bank and has stopped lending to non-residents in France to focus on loan repurchases
- Crédit Foncier, which had a department serving international clients, stopped trading in 2019
- Societe Generale, which had a large international client department, has considerably reduced its activity and now only handles applications from expatriates with an expatriate employment contract
Many other banks have unfortunately decided to tighten up their lending policies for international clients.
For all these reasons, it has always been very difficult to find non-resident mortgage loan. The current situation with Covid has made it even harder to obtain a non-resident home loan. The main reason for this is the closure of international borders and travel restrictions, which make it impossible for home buyers to visit a bank branch to open an account. The situation is also making banks more diligent in terms of their risk policies and the risk of fraud.