Are you about to buy a property and go through a loan from an online bank or are you tempted by a neobank? We explain what you need to know before you start.
In the collective imagination, online banks and especially neobanks (N26, Revolut, Orange bank, Bunq, etc.) are designed above all to provide a secondary or backup account, practical in case of money failures or needs timely payments that traditional banks simply cannot provide. We are thinking in particular of the neobanks accessible without conditions, practical for people in a situation of bank bans, like Nickel or Lydia, or those that promise better benefits for travelers like Revolut, Vidid Money or Bunq.
However, there is a point in which these banks have a weakness by nature, it is the question of services, loans and, in particular, real estate loans. In most cases, in France, the mortgage is taken out with a bank, ideally with your usual bank. But, what is the point of signing a mortgage with an online bank or a neobank? Which ones offer it? Under what conditions and ultimately is it a good idea?
What are the financial criteria to subscribe a mortgage?
The basis of a mortgage is the borrowing capacity. The bank must be able to be sure that a borrower can collect the debt over time without experiencing difficulties. If we talk about figures, it is practically impossible to dedicate more than 35% of your income to repayments, a rule imposed by the High Council for Financial Stability (HCSF), the body that regulates credit in France. In the vast majority of cases, banks calculate this possibility of borrowing from the net salary before taxes and do not take into account your possible tax advantages.
Real estate credit: online banks VS neobanks
The big structural difference between an online bank and a neobank is the provision of a banking license. The latter is essential to offer personal and real estate loans, but also overdrafts in the current account.
Online banks are mostly beneficiaries of solid financial institutions, most of the time from a traditional bank. Thus, they can offer credit-based banking products with borrowing potential. By their nature, neobanks typically choose to go for an easily accessible banking license, which is also the least expensive and least restrictive and may even turn to service providers to manage service provider flows. For example, we can think of brands like Vivid Money or Helios that depend on BaaS (Bank As A Service) Solarisbank, which offers turnkey banking solutions. The downside is that, in the eyes of French law, these establishments are only considered payment establishments. As such, credit in all its forms, including overdraft, is strictly prohibited. However, they can also turn to service providers to take care of the credit part, such as N26, which has partnered with Younited Credit to offer loans payable between 12 and 84 months. Keep in mind that this is in no way comparable to a real mortgage, the amounts and terms of which are much more regulated.
If we stop on the side of online banks, the main difference with a traditional bank lies in the management of financial services. Since they do not have a physical agency, it is inevitably impossible to find a financial advisor. Everything is managed online by phone or email or instant messaging. At this point, they tend to attract borrowers better, as they tend to offer cheaper financial services, faster and more efficient customer follow-up. It is very easy to change and communicate with an online bank unlike traditional banks that are only open during business hours. And this is precisely the weakness of online banks in the context of a mortgage. If you want a local service, and in particular to speak to an adviser, the traditional bank is more suitable. In addition, traditional banks are less restrictive and accept more complex real estate projects. Depending on the profile, which will be much more complex to obtain in an online bank.
So, do we sign?
As with any type of loan that involves large sums of money, it is better to make sure that you can count on as many collateral as possible. If we talk about online banks, the offers seem attractive, but each of them offers special conditions that can have an impact on your budget. As part of a mortgage, application fees are generally low and sometimes even offered, unlike traditional banks. The rates are also very attractive and negotiable in the case of direct debit of income with the lending bank, which therefore includes the fact of having to choose an online bank as the main bank. Another advantage is that online banks allow you to manage all your banking operations through their applications, including credits and loans.
The main disadvantages are precisely related to real estate loans. Online banks have quite restrictive conditions and the offers refer mainly to conventional mortgage loans. So don’t expect to be dependent on complex financing plans for your future luxury real estate portfolio.
Also keep in mind that it is mandatory to be a customer to take out a mortgage with an online bank. Most of them offer minimum loan offers between €50,000 and €100,000. So, they rarely accept loans for rental investments, building a house, and buying new off-plan homes. The same goes for loan buybacks, bridge loans, and zero-rate loans, which are not accepted by everyone.
On the neobank side, the issue is less complex. Rare are those who offer mortgages in their offers. Some, like N26 or Revolut, provide consumer credit for a car, equipment, or cash needs, but that’s where it ends. The only neobank that has entered this market is French and it is Orange Bank. Inevitably, he himself tinkered with the remains of Groupama Banque, he has experience in traditional banking as well as a license that allows him to offer these types of products. On the other hand, it seems that today it is no longer possible to take out a mortgage, preferring the bank to focus on more traditional consumer loans.
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