A Ruling of March 2006, which reformed the way mortgage guarantee functions in France, made it possible to introduce the “reverse mortgage”, named in French “Prêt viager hypothécaire”, which precisely means “lifetime mortgage loan”. Since June 2007, it has been made available by Credit Foncier, the oldest and most famous French mortgage bank. Its commercial name is therefore “Foncier reversimmo”.
Like in other countries where similar products exist, Foncier reversimmo is a loan for senior persons (minimum age is 65). No repayment is due until the borrower dies. Then, if the debt exceeds the value of the property, due to longevity longer than average or to the evolution of real estate prices, the loss is not borne by the heirs but by the bank (or its insurer). Unlike other countries, the property does not have to be the main residence of the borrower; it can be a second home or a rental unit.
Reverse mortgages are sophisticated products and are not likely to become as widespread as home purchase mortgages. They require an appraisal of the property, an insurance of a peculiar type and detailed information of the borrower and his future heirs. Therefore they are quite expensive: the (fixed) interest rate of 8.5 % and the amount of the loan, though comparable to what can be borrowed in other countries, will probably disappoint some candidates. For example, a 75 years old person owning a property valued at 200,000 € will be entitled to borrow 68,000 €, i.e. 34 % of the value of the property.
This does not seem to discourage the potential borrowers who are already quite numerous, according to Credit Foncier. It is true, that PVH is nonetheless much more attractive than the old “viager” system in which a buyer bets on the seller’s early death. The case of Jeanne Calment living up to 121 years and surviving her buyer is worldwide famous
Claude Taffin is Director of Economic and Financial Studies at "l'Union Sociale pour l'Habitat", the association of French social renters (Hlm), and Present president of the Statistical Working Party of the European Mortgage Federation. Mr. Taffin is Co-author on two reports on mortgage lending for the French government, among them "Le prêt viager hypothécaire et la mobilisation de l'actif résidentiel des personnes âgées (July 2004)".