Buy-to-let investment
Financing a bare ownership purchase: the loan for a property that generates no income
Bare ownership on credit: no rental income against the loan. Term aligned with the usufruct, security, charges, taxation, exit: what the bank checks.
A bare ownership is financed by a mortgage loan that nothing alleviates: without rent during the entire split of ownership, the instalment weighs solely on the borrower's income within the debt-to-income ratio. The loan term is calculated from the date of extinction of the usufruct, subject to the maturity ceiling of the regulator, and the security is discussed from the first meeting, as this type of property falls outside the standard grids.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- For the entire duration of the split of ownership, the bare ownership generates no rent: the instalment is repaid solely from the borrower's income.
- In a fixed-term split of ownership, the loan term is calculated from the date of reunification of the usufruct and the bare ownership, not by habit.
- Maturity capped, deferral included: outside the margin of derogation, only operations listed, where the split of ownership is not named, can exceed it.
- For a bare ownership, the code names loan interest among deductible charges only if the usufruct belongs to one of the bodies it designates.
- The deficit that these interests create is offset, except in cases reserved by the text, only against rental income.
- Selling a bare ownership before the extinction of the usufruct is addressed only to a buyer willing to wait for the same deadline.
Financing a bare ownership means repaying a loan throughout the entire period of the usufruct, with no rental income to offset the cost. The lender therefore examines your income, the term, the security, the outgoings, and the exit strategy. This is the credit aspect of financing rental property.
What you are actually buying with a bare ownership
Ownership without the right of use or income, for a set period. Upon the expiry of the usufruct, the full property reverts to you, at no additional cost.
- A temporary division of ownership is a product: a grantor holds the usufruct for a duration specified in the deed.
- A life interest has no fixed end date: it follows a succession or a gift.
Your solicitor will specify who pays what and what might terminate the usufruct earlier.
An instalment borne by your income alone
There is no rental income to retain: the entire instalment falls on your income, like a consumer credit loan. This is the point that determines the outcome of the application.
A rented apartment generates revenue (rental income). A bare ownership does not, even though you are often paying for your own home.
Critère d'octroi que la décision du Haut Conseil de stabilité financière fait appliquer par les établissements de crédit et les sociétés de financement « outre leurs critères propres » : il s'ajoute à la politique de chaque prêteur au lieu de s'y substituer, sous réserve de la marge de dérogation que la même décision leur ouvre. Le taux d'effort rapporte les charges d'emprunt aux revenus, parmi lesquels la décision admet les loyers futurs du bien financé : une nue-propriété n'en produit aucun pour compenser l'échéance.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
- Your borrowing capacity is used up for the next project (the debt-to-income ratio).
- Count the years without revenue.
- Insurance adds to the burden (insurance for rental property).
Aligning the loan term with the end of the usufruct
The term is derived from the date of extinction of the usufruct. The maximum maturity may be shorter than the usufruct.
La maturité est la somme de la période de différé et de la période d'amortissement. Elle ne s'allonge pas parce que le bien financé reste muet : la même décision ne tolère une maturité plus longue que pour les opérations d'entrée en jouissance décalée qu'elle énumère (voir plus bas), et n'autorise les établissements à déroger à ses critères que dans une marge de flexibilité plafonnée. Un usufruit plus long que ce plafond ne se couvre donc pas, en règle générale, par la seule durée du prêt.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
- Finish before the reunification: the tightest cash flow, then a debt-free home.
- Finish with the reunification: the burden ends when the first rent arrives. Request exactly this term.
- Finish after: rents or resale take over. Decide first what you will do with the property.
La décision énumère les situations visées : vente en l'état futur d'achèvement, contrat de construction d'une maison individuelle, contrat de promotion, acquisition dans l'ancien donnant lieu à un programme de travaux dont elle fixe la part minimale et l'objet. Le différé y est d'une durée analogue au décalage d'entrée en jouissance, et la période d'amortissement ne peut excéder la maturité du cas général. Le démembrement n'y est pas nommé en tant que tel.
- En vigueur depuis le
- Source
- Légifrance
A deferral fits within the maturity and increases the instalment. Off-plan programme? Ask whether it is treated as a new-build property. Without amortisation: the in fine loan.
Security: a point to settle at the first meeting
The property yields neither use nor rent prior to the meeting: each lender responds differently. Ask the question before the survey.
Guarantee schemes target ordinary properties: initiate the processing early. Compare the options: guarantee or mortgage. Request in writing:
- What security is provided on a bare ownership?
- Has the guarantee scheme given its agreement in principle?
- Is its cost included in the loan offer (read your loan offer)?
Charges and works: what you must have read before signing
The law allocates by default, but it is your deed or your agreement that binds you. Read them line by line.
| What may fall due during the division of ownership | What you must have read before signing |
|---|---|
| The routine service charges of the co-ownership | The clause that allocates them, and the person who pays them to the co-ownership manager |
| Routine maintenance and minor repairs | Who orders them, who advances the costs, who bears them |
| Major works and repainting | The clause that allocates them, and what happens if the vote takes place at the end of the usufruct |
| The council tax and associated taxes | The name on the notice, and the clause that organises any potential reimbursement |
| The condition of the property at the restitution | What is promised regarding the restoration, and by whom |
| The occupation of the property at the extinction of the usufruct | What the deed and the agreement provide for the tenant in place, and whether the property is returned to you vacant or occupied |
| The insurance of the property | Who subscribes to what, and what remains at your expense |
Surprises arrive at the end of the usufruct: have written down what is provided for that date.
Are the interest payments deductible when there is no rent?
Only in the case that the code designates: usufruct held by a social housing body, a mixed-economy company or an approved body. Outside of this case, consult a tax adviser. The deficit cannot be offset against a salary.
- The actual tax regime is required.
- The deficit can only be offset against rental income, for a limited period.
- Without any other let property, there is no immediate saving.
In a company: the SCI taxed under income tax or corporation tax.
Preparing the exit before buying
The buyer of a bare ownership waits for the same date as you: the candidates are rare and the sale takes longer.
- Selling during the usufruct: the least predictable exit, to be calculated before buying.
- Selling after the reunification: the most liquid.
- Refinancing: the same file, on less favourable terms.
Keep some headroom in your borrowing capacity.
Family division of ownership: other rules of the game
After a gift or an inheritance, there is no date or operator. The financing often covers the buy-out of the other heirs' share.
See the purchase in co-ownership, the family gift and, if the usufructuary finances, borrowing after sixty years.
Six documents to prepare the study
As a mandate holder for a mortgage intermediary, I prepare the financing on these six documents.
- the deed or the draft deed, with the date of extinction;
- the agreement on the allocation of costs;
- the cash flow plan for the period without rent;
- your property situation;
- the exit scenario;
- the complete file: the documents to gather.
My fees: the charges.
Considering a division of ownership? Create your file or compare the duration of the usufruct to your borrowing capacity.
Sources
Read next
- How much can I borrow? Mortgage capacity in Lyon
- SCPI financing: what the lender checks before funding units Few lenders finance SCPI units. Loan regime, income considered, security, fees, liquidity: what they verify and how to prepare.
- The in fine loan: who it truly benefits, and why you will be refused In fine loan: three cumulative access conditions, a higher cost than an amortising loan, and a narrow tax advantage. Check whether your application is eligible.
- Buying in co-ownership: securing the loan, the shares and the exit Buying jointly in co-ownership: what the bank requires, how to set fair shares, and how to exit while the loan is still running.
- Donation from parents for the down payment: ensuring the gift is recognised without delaying the application Family gift for the down payment: documents proving the origin of funds, what must be declared, and what to ask the notary before the transfer.
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