Homing in on the French: As the Channel tunnel brings us even closer to our neighbours, Caroline Merrell has some hints for househunting Britons

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THE OPENING of the Channel tunnel could increase the allure of owning a property in France.

On the face of it, property in France looks cheap. For as little as pounds 12,000 it is possible to buy a rudimentary farmhouse in Brittany or Normandy - both within easy distance of the tunnel.

Potential buyers have three options when it comes to financing their purchase. They can buy the property outright from their savings, purchase it with a mortgage or remortgage in sterling or buy through French franc mortgages secured against the property.

Peter Davies, a financial consultant with Legal & General who specialises in arranging finance for French property, said the best method of buying a property was through a French franc mortgage secured against the house.

This reduced the risk of currency exposure. 'You could remortgage your home in the UK to buy a property in France for pounds 50,000,' he continued.

'When you come to sell the property and exchange the money, at that moment the currency exchange could be such that you end up with pounds 40,000, which would leave you with a pounds 10,000 shortfall.'

Taking out a French franc mortgage, paid off monthly from income, cuts down on the currency risk as the payments are made over the period of the loan. Exchange rate fluctuations could work either for or against the purchaser.

The interest rates on French franc mortgages vary from about 7.5 to 9.7 per cent. Mortgages are only offered on a repayment basis - endowment or interest-only mortgages are not allowed. Lenders offer both fixed and variable rate mortgages.

The fixed rates peg the interest for the entire term of the loan - the maximum is 20 years. Mr Davies said French interest rates were far less volatile than in Britain.

'When our interest rates were at 15 per cent French rates were at about 10 per cent,' he said. 'Their variable rates are effectively 'cap and collared' and will not fluctuate by more than 3 per cent.'

A maximum of 80 per cent of the purchase price can be borrowed. Lenders offering franc loans include Abbey National, Banque Woolwich (part of the Woolwich Building Society), BNP, UBC and Credit Agricole.

Anyone buying a property has to use a French notaire, the equivalent of solicitor over here. Notaire fees are between 11 and 14 per cent of the purchase price of the property. The buyer also has to take out term assurance to cover the loan.

Some lenders will allow you to borrow a proportion of the fee. Administration fees are a further pounds 500 and survey fees are pounds 300.

Joe Chapman, a director of a transport company in Essex, bought a farmhouse in Calvados, Normandy, about 18 months ago. He paid pounds 22,000 in cash for the property and borrowed about Fr100,000, then worth about pounds 10,000, from Credit Agricole to pay for renovations.

He said: 'I bought the property from an Englishman I met at a French property show.

'He had built a drive and added a septic tank. I converted it further, adding bedrooms and bathrooms.'

He uses his holiday home about six times a year. His monthly repayments are just over Fr1,000, equivalent to about pounds 134.

Lesley Cordier, marketing officer at BNP, said there were two important things to look out for when buying a property in France. 'It is very important to tell the notaire if you are trying to take out a loan to pay for the property,' he empasised.

If homebuyers do not tell the notaire to add a special clause to the contract they could lose the mandatory 10 per cent deposit should they be turned down for the mortgage.

Ms Cordier also warned that the French inheritance laws differd from the those in Britain. Any children of the property owner, including those by previous marriages, have rights in the property on his or her death, and may not be disinherited, which means a surviving spouse could be left homeless.

If there are no children, the parents of the deceased are entitled to shares in the property on the same principle.

One solution is to draw up a French will giving the surviving spouse rights of occupation. Another is to create an agreement between the spouses equivalent to a joint tenancy.

(Photographs omitted)

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