The ski season has long ended and most people are thinking of the beach, but for some the lure of a home in the mountains will remain strong.
There will be no shortage of skiers and snowboarders who returned from trips in a year when Europe was blessed with fantastic snow and thought that they wouldn’t mind a property of their own in the French Alps.
But how achievable is that – and can you actually make it pay for itself? Developers often claim that by renting an apartment out during the season when you’re not using it, you could cover your costs.
Erna Low Property is selling leaseback apartments costing €450,000 in the French ski resort of Arc 1950
Arc 1950 is a popular ski resort overlooking Mont-Blanc, offering ski-in ski-out apartments
That’s the claim that so-called leaseback apartment developments often make. The idea is that you buy an apartment and get a tax break and regular income by agreeing to let it out to holidaymaker for most of the season for a set period of time.
At the end of such a long-term deal, you could have paid off any mortgage and own the property outright, along with the right to stay there as much as you like.
If you’re tempted by one of these offers then you absolutely must check all of the numbers add up, what the restrictions are on staying, how long you are signed up for, what service charges amount to and what stands behind any claimed ‘guarantees’.
However, some people fall at the first hurdle in the long-term leaseback game, as a lack of information can mean they’re unaware how long it will take, what it will cost and of the restrictions they may face. This can leave them disillusioned and looking to get out early.
So, if you are considering such a deal, MailOnline Property asked a developer for a timeline to help show what you need to pay – and when.
With the help of estate agents Erna Low Property, we have outlined the hypothetical buying journey for someone purchasing a two-bedroom leaseback apartment in the French Alps costing €450,000 – or around £400,000.
A leaseback apartment sees buyers own the freehold but ‘lease’ it back under a commercial agreement to a company that takes care of renting it out.
Francois Marchand, director of Erna Low Property, explained: ‘Leasebacks can work well for those who don’t have time to manage the rental of a property abroad, let alone take care of the maintenance, services and utilities. As this is the vast majority of people looking for a property in the French Alps, leasebacks are an attractive proposition.
‘The management company takes care of the rentals, in fact they take care of everything allowing you to enjoy your ski holidays in a hassle-free property, with great tax incentives that pays for itself.’
If you return to the slopes at the start of next season and decide that the time is right to buy, here is a timeline to help you understand how things work, beginning in January and finishing a year later…
JANUARY – £8,000 (2% reservation deposit)
The timeline is divided into months of the year – starting, in this case, in January. This is when you will need to let the developer know which apartment you would like to reserve. It costs nothing to do this and so at this point, you still have not parted with any money.
In this example, the apartment is a leaseback, meaning that you own the freehold of the property but lease it back to the development as part of a commercial arrangement lasting a set term.
As a real life example, at a development at the French ski resort of Arc 1950 this is nine or 11 years depending on the contract signed – and you’ll need to renew the lease over a period of 20 years in total to benefit from the 20 per cent VAT saving that’s available.
Also during this first month, you’ll need to provide the developer with your personal information, including your full name, place and date of birth, address, telephone number, email address and a copy of your passport.
You will also need to provide your expectations regarding a mortgage in terms of how much you intend to borrow and over what period of time.
This information will be passed to the English speaking notary, who will prepare your legal reservation contracts.
The property at Arc 1950 is being offered for sale under the leaseback scheme
Leaseback properties can work well for those who don’t have time to manage the rental of a property abroad
A leaseback apartment sees buyers own the freehold but ‘lease’ it under a commercial agreement to a company that takes care of renting it out
Most notaires will not require payment until completion of the sale – although some may ask for an advance of around €500 at the start.
In total, throughout the whole purchase process they tend to charge around 2 per cent of the purchase price, with these ‘notaire fees’ covering both legal costs and what is called émoluments – the equivalent of our stamp duty.
At the same time, you’ll need to be in contact with your mortgage broker if you plan to borrow money from a lender to buy the property.
The reservation contract will be sent out to you by post. It needs to be reviewed with the notary and then signed. The contract is then sent to the developer.
The final thing to do this month is to pay the purchase deposit, which is the first time during this process that you’ll be spending money.
If a development is at an early stage and has not sold many of its units, then the deposit is likely to be lower at around 2 per cent to incentivise borrowers.
But once more of the apartments in a block have been sold, the developer is likely to increase the deposit requirements to 5 per cent. The deposits cannot be touched by the developer until the purchase is completed – but they need to prove that they can sell 50 per cent of the units before they can secure the required development finance.
The developer countersigns the contracts and returns them to you. There is a 10 day cooling off period that allows buyers to withdraw from the contract if they change their minds.
At the end of this 10 day period, the deposit becomes non-refundable – unless you’re unable to obtain a mortgage, as the purchase is subject to mortgage approval.
The notary begins gathering various third party information to prepare the final deeds of sale. This includes land registry data, information about the planning permission from the local council and the risk assessment carried out on the land.
APRIL – £72,000 (as £8,000 already paid)
By this time, your mortgage should be approved and you should have been sent the mortgage contract. With a French mortgage, borrowers must respect another 11 day cooling off period before signing the contract and returning it to the bank.
Overseas buyers can choose to sign the deeds of sale in person in France. However, most sign a power of attorney document instead, which grants power to their notary to sign the deeds of sale on their behalf in France.
This saves travelling to France in person to complete the purchase. The power of attorney document is prepared by the notary and emailed to you.
Leasebacks can work well for those who don’t have time to manage the rental of a property abroad
You must sign this power of attorney in front of a public notary in Britain who must be registered by the Foreign Office.
This registration with the Foreign Office is effectively the authority to witness the signature of French documents – something that not all public notaries or solicitors have.
Once the power of attorney is signed, it must be sent to the Foreign Office to be apostilled before it can be sent to the notary.
The apostille is a rubber stamp to confirm that the notary in Britain has the authority to witness the signature of French documents. Without the apostille, the notary may not accept the power of attorney. Not all notaries in France insist on the document being apostilled, but the more thorough will do.
Separately, the notary will send you a breakdown of the funds required, which you will need to transfer to his account. This would typically start with 65 per cent of the purchase price being required by this point. The actual amount depends on the timeline of the construction – with the first floor having been completed in this example.
In terms of how much this will cost eventually, with interest rates in France at around 2 per cent, this would equate to a monthly mortgage payment of around £1,320 a month. This is based on a repayment mortgage of £320,000, on a £400,000 property bought with a 20 per cent deposit of £80,000. The mortgage would be fixed for 20 years.
The reservation deposit of £8,000 is separate as it is part of the personal contribution.
Arc 1950 is the newest resort in the Alps, built as the fifth installment to the massive ski domain of Les Arcs
Ski in ski out apartments are the ideal property to attract rentals throughout the winter season
A management company can arrange cleaning and maintenance of the rental apartment
The signature of the deeds takes place this month.
Once the notary has received your signed power of attorney, the required funds from you and the required funds from the mortgage, the notary will sign the deeds of sale and the purchase will be complete.
At this point, you will need to pay the notary his fee of around £8,000 (minus the €500 if this was paid in advance).
Building on the development is likely to begin this month, with the developer having launched the scheme for sale around 18 months previously and secured the required 50 per cent of sales to meet the development finance requirements.
There is no payment to make for the mortgage as there is no call for funds made as yet.
JUNE – £910 (first monthly mortgage repayment)
At this stage, you will have paid a 20 per cent deposit of £80,000 and eventually have a mortgage of £320,000.
However, only 45 per cent of the purchase price needs to drawn down at the stage, for completion. It means a monthly mortgage payment on £180,000 of £910 is now due.
JULY – £910 (monthly mortgage repayment)
AUGUST – £1,020 (monthly mortgage repayment)
The next stage payment is required as the development is likely to be air and water tight, with 5 per cent of the purchase price paid directly by the bank to the developer. It means that £200,000 of the mortgage has now been paid to the developer and the monthly mortgage payment increases to £1,020.
SEPTEMBER – £1,215 (monthly mortgage repayment)
The next stage payment is required, with around 10 per cent paid directly by the bank. It means that £240,000 has been paid to the developer, with the monthly mortgage payment increasing to £1,215.
OCTOBER – £1,520 (monthly mortgage repayment)
A further stage payment of 15 per cent is required as construction of the interiors begins, bringing the mortgage total to £300,000 and the monthly repayments to £1,520.
DECEMBER – £1,620 (monthly mortgage repayment)
Once the building is complete, the final stage payment of 5 per cent is required.
The developer hands over the property to you and you are given the keys. The final 5 per cent owing is paid by the bank.
Based on a mortgage of £320,000, the monthly mortgage payments are £1,620.
Such a property could be rented out from around £3,400 a week in high season, £2,700 during the mid-season and £1,400 in low season. This would be for a high-spec development in a popular resort.
Erna Low Property claims that the £400,000 property could produce an annual return income of £20,000, leading to a before costs yield of 5 per cent (based on annual rent as a percentage of purchase price).
However, it is important to consider costs and financing when calculating returns. If taking a 50 per cent mortgage at 2 per cent fixed for 20 years, the initial cash invested including notary fees, stamp duty and legal costs would be £206,000.
Deducting management and service charge costs and annual property taxes of £2,650, as well as mortgage interest and repayment costs of £12,000, delivers an annual income of £5,300 and products a total monthly income of £440.
Buy with a bigger mortgage and you will find that any rental income you get will be less – and potentially minimal.
Remember, a rental income guarantee is only as strong as the company offering it and so do your research carefully on this.
Under the leaseback scheme all the rentals are taken care of a management company, which typically allows you to use the property free of charge for a couple of weeks a year and means you avoid the hassle of running and maintaining the property as a holiday let.
Mortgage broker Stephan Briere, who is based in France, said: ‘Paris and the French Alps are the only places to buy in France. They offer great value and prices are still going up.’