The Renovation Advance Loan: A New Solution for Energy-Efficient Renovations
The new version of the transfer advance credit is now ready to be distributed. Amended by the 2024 Finance Act, until recently it lacked the regulatory provisions necessary for its implementation—both regarding the operation of the tax credit paid to banks and the eligibility criteria and amount of funding.
An administrative order and a decree—applicable to loans issued on or after September 1, 2024—were published on September 4 in the Official Journal (JO). Created by the August 2015 law on the energy transition for green growth, this bullet loan—meaning that the principal is repaid at the very end of the loan term—is intended to finance energy-efficiency renovations in a borrower’s primary residence.
The Benefits of an Interest-Only Loan
The advantage of an interest-only loan is that it does not burden a household’s daily budget with monthly loan payments. The principal is repaid when the property changes hands, using funds from the loan proceeds—either through a standard real estate sale between a buyer and a seller or upon the owner’s death during the settlement of the estate.
A 10-Year 0% Loan
One of the major changes introduced by the 2024 Finance Act concerns the cost of the relocation advance loan (PAM), sometimes referred to as a “renovation advance loan.” Its base interest rate will now be 0%. The principal borrowed will be equal to the total amount due at maturity.
However, zero-interest financing is granted for a maximum term of 120 months, or 10 years. If, after this period, the principal has not been repaid, an interest rate may be applied in accordance with the contract signed between the bank and the borrower, known as the preliminary offer.
“The preliminary offer […] specifies the annual percentage rate applicable as of the day following the expiration of the term of the interest-free relocation advance loan,” as provided in Article D-31-11-7 of the Construction and Housing Code, established by the decree relating to the PAM.
Loan Amount and Supporting Documents
Similar to a special-purpose loan, such as a home improvement or real estate loan, the loan amount is not freely determined by the borrower but depends on the purpose of the financing. Thus, the PAM is equal to the amount of expenses incurred for the renovation of the borrower’s home. This “amount may be reduced at the borrower’s request,” states the text published in the Official Journal, for example, if the borrower has a small down payment.
The prospective borrower must provide the bank with a number of supporting documents: a description of the planned work, including the estimated cost of eligible work, signed by each borrower and by each contractor performing energy-efficiency improvements, along with all related detailed estimates. The work must be performed by a professional certified as an “Environmentally Responsible Professional” (RGE).
Funding Cap of 50,000 Euros
To avoid a “windfall effect” among contractors, the amount of the PAM is capped based on the nature of the work undertaken. For example, the interest-only loan cannot exceed 7,000 euros for thermal insulation work on windows and doors. At most, a household may borrow 50,000 euros if it undertakes a comprehensive renovation of its property that results in a significant reduction in its annual energy consumption. A professional must then conduct an energy audit to certify that the target energy performance has been achieved. For the same work, the PAM cannot be combined with the zero-interest loan (PTZ) or the zero-interest eco-loan (éco-PTZ).
Income Eligibility Requirements
In addition to the guidelines for projects eligible under the PAM, this grant is also subject to income eligibility requirements. The income limit, specified in the decree published on September 4 in the Official Journal, depends on the number of people in the household as well as the place of residence (Île-de-France or other localities).
To determine eligibility, the bank considers the most recent taxable income listed on the tax assessment notice. That is why this document must be provided to the credit institution before the loan is signed.
For example, a single person renovating their primary residence in the Île-de-France region is eligible for the PAM if their reference taxable income is less than 28,657 euros, compared to 21,805 euros if they live outside the Île-de-France region. For a couple with two children who do not live in the Île-de-France region, this year’s income limit is 44,802 euros, compared to 58,981 euros if they reside in the Île-de-France region.
To obtain a PAM, the borrower’s application must also include proof of residence to certify that the renovated property is indeed the household’s primary residence. Note: “If the property is not yet being used as the household’s primary residence, the borrower agrees to actually use the property as their primary residence within six months of the loan’s closing date,” states the decree governing the advance-on-transfer loan.
