The abolition of French mortgage tax relief seems likely, in favour of a single lump sum form of assistance towards house purchase.

That at least seems the conclusion reached following a French parliamentary report into the effectiveness of the current measures, and acceptance of the report by the government.

Over two years since the introduction of mortgage tax relief in France, Gilles Carrez, Chairman of the Budget Committee in the French National Assembly has stated that the current system does little to assist those of modest means to become home owners. The Minister of Housing Benoist Apparu agrees with him.

They argue that as the banks do not to take into account the mortgage tax relief (crédit d'impôt sur les intérêts d'emprunt) in their consideration of the size of the loan they are prepared to offer an applicant, it does little to help people onto the property ladder.

Unlike the UK, where banks seem to have been only to willing in the past to mortgage households up to the hilt, in France the ratio of debt to income cannot normally exceed 33%. This ceiling may be increased slightly for higher income groups, but is often actually lower for those with an irregular or modest income.

With 58% of households home owners, France has one of the lowest levels of home ownership in Europe. The European average is 70%.

So one of the objectives of the proposed reform is to increase the level of home ownership in the country.

The introduction of mortgage tax relief was one of the key elements of the presidential election campaign by Nicolas Sarkozy in 2007, as part of his declared aim to increase the level of home ownership in France. It clearly has not worked.

Mortgage Relief

Mortgage tax relief is universally available in France for the purchase or construction of a property, provided it is to be your main home, for the first five years of the loan.

Tax relief is granted at the rate of 40% of interest incurred in the first year, followed by 20% for the remaining four years, capped at a maximum level of relief of €7,500 for a couple.

Since 2010, the rules on eligibility have been changed for newly constructed properties.

In order to obtain full relief on a newly constructed property it must be built to low energy consumption standards - Bâtiments Basse Consommation (BBC) - when mortgagees are then entitled to seven years tax relief.

Older properties remain exempt from the rule to meet these energy standards.

Mortgage tax relief is also available to expats resident in France, on exactly the same basis as to French nationals.

A 'tax credit' will come in the form of a cash payment to you from the French tax authority.

Reform Proposals

Under the reform proposals, French banks would be able to take the single lump sum payment into consideration in evaluating the level of the loan to which you were entitled.

It is not proposed that access to the grant be restricted to those on a low income, or restricted to first time buyers, and the amount available is likely to vary by geographic region.

However, in order to keep the costs of the new system to an affordable level the amount of the grant will be capped, and it seems inevitable that there will be some income related restrictions on eligibility.

Although the government has stated that it is sympathetic to a change in the rules, the Minister of Housing, Benoist Apparu, has stated that he would prefer a wider review of existing mechanisms of support for home ownership.

There are indeed a number of support mechanisms available for home ownership, including tax free mortgages for first time buyers (prêts à taux zéro), loans linked to home ownership saving schemes (prêts épargne logement), as well as housing benefit relief through aide personnelle au logement (APL).

The Chairman of the Budget Committee has stated his public opposition to a more general review, as he considers that this would inevitably delay reform of the current system of mortgage tax relief.

So over the coming months we are set for a behind the scenes battle concerning the scope of the reforms.

You can read more about French mortgage tax relief and the operation of mortages in France in our comprehensive guide to French Mortgages.