0% mortgage

Since 1995, the French Government has been helping first-time low income buyers to cover part of the purchasing cost of their property by means of a zero-interest loan program.

The program has gone through a number of changes.

The initial program (PTZ) ran from 1995 to 2005, and priority was then given to new builds purchased by low-income borrowers (means tested). The banks granting these loans received, via SGFGAS, a subsidy from the state to compensate for the foregone interest payments.

In 2005, the program was changed to NPTZ. It also covered existing properties. A further change was that the state subsidy owed to the banks was paid in the form of a tax credit (calculated by the SGFGAS) and no longer as a cash transfer.

On 1 January 2011 a Revamped 0% mortgage ("PTZ+") was launched. With this version, the loan maximum amounts were reviewed to align with market reality. The PTZ+ has undergone several changes since 2011.

On all programs, the loan amount depends on a number of factors: type of property (new build or existing, etc.), number of occupants and location. When applying this latter parameter, the zone of location of the property is taken into account (zone A, notably the Paris region; B1; B2; C). The loan profile (overall term, grace period) is a function of the borrower’s income. (the  lower the income, the longer the term and the grace period and this the higher the implied subsidy).

The PTZ+ program in 2011

PTZ+ loans approved during 2011 were not subject to means testing. The household income did have an impact on the repayment schedule. There were 10 different income tranches and repayment  profile.  The PTZ could be used to finance an existing property or a new build.

In the case of existing properties, the PTZ+ amount lent depended on the energy consumption performance of the property, as measured by a "DPE" test (Energy Performance Assessment) done when completing the purchase, and classifying the property from "A" (best performance) to "G" (worst performance). In the event of the property being sold by a HLM organization (rent-controlled social housing), the PTZ+ loan amounts were increased by 5%.

For new properties, the loan amount was greater for energy saving units (BBC regulation).

349 800 PTZ + were issued in 2011.

The PTZ+ in 2012

The Finances Act for 2012 redesigned the PTZ+ for loans granted as of 1 January 2012, so as to reduce the cost of the scheme.

Most of the properties financed were new builds, and energy-efficient builds were eligible for larger loans. As of 1 June 2012, it was also possible to use the PTZ+ to finance the purchase of a fully renovated property, as concept captured by the French VAT regulations.

Of note is the specific case where an existing social housing property ("HLM") is sold to its tenants. In this case, a PTZ+ representing 10% of the transaction amount can be granted, subject to the price of sale of the property being reduced with respect to a valuation carried out by the "services des domaines" (in charge of valuing and selling property owned by the state of France).

Lastly, in 2012, applicants were once again means tested, and divided into 6 "tranches"; the length of the loan repayment schedule varied according to the income of the applicant.

77 800 PTZ + were issued in 2012.

The PTZ+ in 2013

As of 1 January 2013, the PTZ+ program was again changed. It was still limited to new units, but all new builds had to comply with the latest energy saving regulation (RT 2012), as this became mandatory for all new constructions in 2013, instead of optional as in 2012. An additional feature of the 2013 PTZ+ program was the re-introduction of fully deferred payments (grace period)  for the first 2 categories of tranches as well as a further reduction of the resources ceiling of the applicants.

42 000 PTZ+ were issued in 2013.

The PTZ+ in 2014

A number of changes were made to the program during 2014, with effect as of 1 October 2014.

The zones used to identify the location of the property (A, B1, B2 and C) were reviewed, and this led to a significant modification of the population breakdown between these zones.

Secondly, the amounts eligible for the program were changed.

Lastly, the loan repayment schedules were modified, and made  more attractive.

46 500 PTZ were issued in 2014.

The PTZ program in 2015

Apart from a name change (from PTZ+ to PTZ) 2015 sees the extension of the program to include the financing of existing properties, subject to meeting requirements of renovation work and localization.

With this remodeled PTZ, the goal is to help reinvigorate small villages and towns. This version of the PTZ program is of potential

interest in about 6000 municipalities in France.

58 500 PTZ were issued in 2015.

The PTZ program in 2016

Four changes were introduced for 2016:

• PTZ now finance 40 % of the cost for all zones and projects (expect sale of former social housing units, 10 %)
• Income ceilings have been increased and borrowers are nowclassified in three tranches instead of five
• A full payment deferral is extended to all borrower, between 5 and 15 years according to income tranche
• PTZ for existing properties with renovation are available in all locations.

Main characteristics of the PTZ loans

The program is applicable in mainland France as well as French overseas territories.

The borrower pays neither interest nor administration fees to the lender. The interest on the loan is paid by the French State, in the form of a tax credit granted to the lender.

The lender remains however entitled to require the borrower to take out insurance against invalidity and death. It may also require guarantees (lien or guarantor), in which case costs are paid by the borrower.

If, as part of the same operation, another loan granted by the same lender is a "PAS" ("Prêt d'accession sociale" - Affordable Housing Loan), then the PTZ must (mandatory requirement) be guaranteed by FGAS. The PTZ can be combined with any other loan, provided however that such loans are mutually compatible.

The PTZ does not give a right per se to Personalized Housing Assistance (APL), but this right may be given by an officially approved mortgage (i.e. a loan with regulated interest rate, granted by financial institutions which signed an agreement with the State of France) or a PAS, contributing to the financing of the same operation.

Who can borrow under the PTZ scheme

To be entitled to a PTZ loan, the borrower must purchase or build a property to be occupied as his main residence (i.e., at least 8 months of the year).The borrower must not have been the owner of his main residence for the 2 years preceding the PTZ loan offer. Exceptionally, the preceding rule (referred to as the first-home ownership rule) shall not apply if the borrower is a physically handicapped person or has been the victim of a natural disaster.

Applicants are means tested, and the applicant's household income has an impact on the repayment schedule. When means-testing an application submitted in the course of year "N", the applicant's income taken into account is that shown on the income tax assessment of each household member for the year "N-2".

In order to avoid possible "windfall" effects for a given year (in case  of rapid increase income  from N–2  to N), it is required that applicants comply in any case to  minimum level of income, calculated with respect to the total amount of the transaction (the applicant's income cannot be less than the total amount of the operation divided by 9, since 1 January 2015).

The term "household" means all persons intended to occupy the financed property on the date of issue of the loan offer.

Only one loan can be granted per household.

Qualifying transactions

New built properties

The concept of "new build" is determined using the criterion of first occupancy of the property.

As regards new builds, the property can be purchased from a developer, or alternatively, the buyer can have a new property built. The program can also be used to partially finance the purchase of the plot of land on which the new property will be built.

As of 1 June 2012, it is also possible to use the PTZ to finance the purchase of a fully renovated property, a concept also captured by the French VAT regulations.

Existing properties

Since 1 January 2015, 2 types of existing properties are eligible for PTZ financing, to different extents:

1. Sale of an existing social housing property ("HLM") to its occupants, subject to the price of sale being in line  with  a valuation carried out by the "services des domaines" (in charge of valuing and selling property owned by the French State);
2. Purchases of existing properties subject to renovation work being carried out accounting for 25% of the total transaction cost.

Financial terms

Amount of the PTZ+

The PTZ  loan covers only a  part of  of the  overall cost. In practice, amounts depends on a number of factors and have changed over the years:

• The percentage is set with respect to the following factors: maximum operation ceiling (varies according to the region in France); new build or existing property (HLM social housing)); number of persons given as occupying the property. Specifically, the entire territory of France has been split into a number of zones according to the level of supply and demand on the housing market.

Current maximum prices are as follows :

In 2016, the PTZ can finance 40 % of the operation cost as defined above, except for properties sold by a "HLM" social housing owner (10 %)The percentages for 2015 took into  account the  location of the  property.

• The PTZ mortgage amount cannot exceed the total amount of other loans taken out for the transaction. Loans included for the application of this limit must be for a duration of 2 years or more (thus excluding bridging loans). As a result of this rule, PTZ mortgages must be accompanied by at least one other loan, whether or not granted by the same lender.

In practice, a PTZ loan amount must always equal the smaller of the following sums:

Repayment rules for a PTZ Mortgage

A PTZ mortgage is repaid over a shorter or longer period (i.e. the repayment schedule) depending on the reference taxable income of the household and on the household composition.

The scale used in 2016 is as follows:

The household composition is also taken into account in that the applicable category depends on the household income divided by a coefficient linked to the number of household members (1.4 for 2 members, 1.7 for 3 members, 2 for 4 members and 0.3 for each additional member up to 8).

On request from the borrower, the lending institution can reduce the loan amount and duration.

The State has tasked SGFGAS with determining the factors used to calculate the tax credit relative to loans granted by lenders, doing so in accordance with the provisions of articles R.31-10-1 and following of the Building and Housing Code and for transferring the results of these calculations to the lender and the tax authorities.