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French property: What is a PEL and can it help offer a lower mortgage rate?

The Local France
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French property: What is a PEL and can it help offer a lower mortgage rate?
Keys displayed in a property advertisement (Photo by FRED TANNEAU / AFP)

Whether you are a first-time home buyer or you are looking to refurbish your home, this French savings programme can help you save and get a more attractive rate for your loan.

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If you are looking to buy a home in France - or refurbish a property - then you might consider either the PEL (Plan épargne logement) or CEL (compte épargne logement), which are French savings plans that can help you secure a more advantageous personal loan rate or mortgage.

Essentially, one opens a PEL or CEL with the intention of investing in French property within the coming years, and the plan helps to facilitate that saving with a higher cap than other generic savings accounts.

Before opening a PEL or CEL plan, however, there are a few things you should know:

Who should open a PEL or CEL?

Financial advisor Maeve Hoffman, a partner at Spectrum IFA Group, "definitely recommends" opening PEL or CEL "for first time homebuyers." Those looking to refurbish existing property might also consider opening a PEL or CEL.

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The savings programme "helps to demonstrate to your bank that you can save and that you have enough to pay a mortgage." 

After the saving term, the account owner "can take out a mortgage or personal loan for renovations at a better rate." 

Things to consider before opening a PEL or CEL

If you already have a lump sum prepared for purchasing a home, this option is probably not for you. Instead, you might consider placing your funds in a CAT - Compte à Terme. This is a savings account with a higher rate of interest than a generic savings account, like a Livret A.

It is only available for a specific amount of time, so if you have a clear timeline of when you will be purchasing the property or paying for the refurbishment, you might consider putting the funds into a CAT so they can earn a bit more interest than they would in a generic saving's or current account. 

This must be done by signing a contract with a bank, and by specifying the term of the investment (meaning you as the investor would not have access to those funds during the set-time). The contract will also specify the type of interest rate. Keep in mind that interest accrued would be subject to income tax and social security deductions.

For those looking to grow their investments for other purposes, then you can find detailed information for Brits living in France HERE and for Americans HERE.

READ MORE: What is a Livret A and should foreigners living in France open one?

As this savings plan is opened with your bank, it "locks the investor into that particular bank," Hoffman explained. This means you would likely need to go through this bank for your personal loan or mortgage. 

The savings plan also has a minimum period of investment, and depending on whether you open a CEL or PEL (see below) a minimum amount should be continuously deposited into the account.

US citizens should keep in mind that they must disclose any non-US bank accounts that held $10,000 or more at any one time in the year – you do this when you file your annual tax return, you have to include a Foreign Bank Account Report (FBAR).

What is the difference between a PEL and CEL, and how do they work?

The PEL is an accumulated savings that can be used to obtain a mortgage or loan on more advantageous terms. The maximum amount you can pay into the PEL is €61,200.

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PELs have a minimum (four years) and maximum (ten years) contractual duration. After 10 years, you can no longer make payments, but your PEL can continue to earn interest for up to five additional years.

The minimum initial deposit is €225, and you must continue to deposit money into the account in accordance with the terms of your individual contract. If you fail to do so, the account will be automatically closed. You can choose between an option to pay into the account on a monthly, quarterly, or semi-annually basis, though on a yearly basis you should deposit at least €540.

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Depending on whether you opened your account prior to or after 2018, you may benefit from a government bonus when purchasing the property you were saving up for. Additionally, the timeline of when you opened your account determines whether interest earned on your savings are taxable. 

Interest earned on a PEL account opened after 2018 is subject to income tax and social security deductions. Every year, your bank should provide you with a statement showing the amount of interest earned on your PEL and the amount of the single flat-rate levy.

As of December 2022, the interest rate was one percent.

The second option is the CEL. You need to start the account with a deposit of €300, and you can save up to €15,300 in the account. With a slightly higher interest rate of 1.25 percent, the minimum yearly deposit for a CEL is €75. 

Interest accrued for a CEL opened after 2018 is also subject to French income tax and social security contributions. 

The biggest difference between the two is how easy it is to access the funds inside the account – releasing funds from a CEL is hypothetically easier than from a PEL, where the money is meant to be blocked away for at least four years and early withdrawals can lead to penalties.

As of December 2022, the interest rate for a CEL was 1.25 percent.

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