3 solutions to finance a property purchase in 2023

General decline in purchasing power, rise in mortgage interest rates, usury rate remaining a brake on bank credit despite regular revision… There are many reasons explaining the decrease in the number of transactions carried out in recent months. Not that fellow citizens’ appetite for property has dried up, quite the opposite. It is rather difficulties encountered in financing desired projects that are the cause.

Everyone is gradually coming to realise this: property strategies must adapt, rather than locking oneself into a wait-and-see approach that does not guarantee better days ahead. Many must lower their requirements, find additional financing or ways to acquire property that are somewhat less conventional.

A closer look at solutions that can help overcome the difficulties encountered and acquire a property in 2023.

Lease-purchase

Here is a first solution that offers a household the possibility to occupy a house or flat with a view to acquiring it, but without having to pay the price immediately. The principle, used for a very long time, is comparable to motoring lease with purchase option: the dwelling is occupied for a certain time and if it suits, it can be acquired subject to a purchase price reduced by a portion of the rent already paid, which corresponds to an acquisition share.

In concrete terms, a property professional – generally a social housing organisation or a mixed-economy developer – acquires a property or launches a new-build programme. The dwellings are offered for rent for a period of between 1 and 3 years, at the end of which the tenant has priority to buy the property. The portion of the rent destined for purchase will obviously be deducted from the final price, or returned to the tenant if they decide not to acquire the property.

The advantage in the context we are experiencing is obvious: a household held back in its purchase drive by bank requirements can defer taking out the necessary loan in the hope of a more favourable period arriving, and moreover borrow a smaller sum thanks to rent already paid.

Joint property purchase

If several people find themselves having to postpone their property project due to lack of means, the solution can come from a joint purchase. Let us specify from the outset that this type of acquisition remains risky in the event of future disagreement, but can work very well if each co-borrower is committed and respects the rules set collectively. The advantages of a joint purchase are evident: being able to buy a large house to divide, whether or not retaining common areas, making a buy-to-let investment together, or benefiting from a second home at lower cost.

As for the form such an investment can take, we distinguish between:

• The formation of a civil property company (SCI) that can hold one or more properties. Each partner holds a percentage of shares equivalent to their financial contribution and articles of association must be drawn up, which will set out the rules applicable to any conflicts and the terms for a partner’s exit.
• Joint ownership which requires no particular procedure: when purchasing together, joint ownership applies by default (as a couple for example). If each purchaser is here a owner in proportion to their financial contribution, this is not concretely materialised: each has rights over the whole and can block a possible resale even if they are in the minority. A joint ownership agreement can however be drawn up by a notary, which sets out rules agreed upon from the outset.
• A tontine brings together investors wishing to invest in a common fund over the long term. This is a life-saving scheme: if a partner dies, their share is split between the other property owners. The last one alive then becomes owner of the entire property. Caution, the tontine is only authorised if the investors have similar life expectancy. This solution, often used to pass on a property to a specific person rather than to their heirs, has the disadvantage of not being able to be cancelled: in the event of disagreement, only the death of members can close the tontine.

To buy together, a good relationship of trust is essential at the outset, even if an official process secures ownership and the terms for exiting the association. In the event of a loan, the bank will certainly require joint and several liability for repayment: one must be prepared to cover a co-borrower’s default. And beyond the financial aspects, disagreement can cause considerable inconvenience and significant stress, all the more so if the partners are close family or friends.

Bridging loan: it can prove a good idea!

When flexibility is the order of the day, a bridging loan, even if it often has bad press, can resolve a temporary situation. Let us recall that a bridging loan is a loan allowing a new property to be financed without having sold one’s current property: one must therefore already be a homeowner, and the net value of the property owned, calculated by the bank after deducting a percentage from its estimated value, must be sufficient to cover the remaining loan outstanding.

The bridging loan can be secured against a loan, which constitutes the well-known formula decried for the budget burden. It can also be standalone if there is no longer a loan outstanding on the property to sell and it then constitutes an advance. It can finally be integrated into a single loan with controlled monthly payments, including the new loan and a bridging loan, which avoids having to sell the already-owned property very quickly.

In the 2023 context, the bridging loan can be effectively used in this latter way: the owned property is then freed from any charge as the banker takes over their loan balance. The overall credit line will be larger but will more easily make the project a reality. Let us add that from the sale of the old property, monthly payments can be reviewed downwards thanks to the additional contribution. This solution finally offers the security of not remaining in a delicate situation, with two different loans for an indefinite period.

Use of financial investments

One need not be a millionaire to consider securing a property investment through prior financial investments. Thus, a loan against financial collateral can allow a property to be acquired even when a conventional loan is refused: the bank will back the loan of a sum of money with a guarantee such as a mortgage on a securities account, savings, a life insurance policy, etc. The property can then be paid in cash, the loan not being considered a mortgage-type borrowing. Furthermore, it is therefore not necessary to sell one’s assets in order to proceed with the acquisition.

Moreover, and this time to increase a personal contribution that is sometimes too limited, it is possible to withdraw from an employer savings plan without fiscal penalty, for the purchase of one’s principal residence. Likewise, an advance can be requested on certain life insurance policies.

If putting together financing for a property purchase requires a bit more imagination in 2023 than before, many solutions exist that can prove effective or even profitable. Do not hesitate to approach property professionals for advice, in light of your own circumstances and if you encounter difficulties in realising the property project of your dreams.