The loan-to-value ratio plays a central role in property financing for home buyers, particularly for private investors. It is the value that banks set as collateral for lending and is based on the long-term value of a property. The calculation of the loan-to-value ratio is conservative and considers various factors to minimize the bank’s risk.
Key Aspects of the Loan-to-Value Ratio in Property Financing
- Long-term Property Value: The loan-to-value ratio is oriented towards the sustainable value of the property, not just the current market price. It should ensure that the property maintains or stabilizes its value over longer periods.
- Difference from Market Value: While the market value describes the expected sale price in the ordinary course of business and is often influenced by qualitative features such as fittings or energy efficiency, the loan-to-value ratio is set more conservatively and can be lower than the market value.
- Calculation Methods: The determination of the loan-to-value ratio is usually carried out by qualified building experts or property appraisers using special reports (loan-to-value determination). Documents such as land register extracts, parcel maps, energy certificates, and information on renovations are taken into account.
- Impact on Loan Interest Rates and Affordability: Since banks use the loan-to-value ratio as the basis for the maximum loan amount (e.g., up to 80% of the loan-to-value ratio), it directly influences the amount of equity and thus the terms such as interest rates. A higher or stable loan-to-value ratio can enable better financing conditions.
For private home buyers, this means: A well-founded report on the loan-to-value ratio is essential for the realistic assessment of their financing options. It protects against over-financing and assists in negotiations with banks.
In summary: The loan-to-value ratio is a conservative estimate of a property’s value for securing loans in property financing; its accurate determination by experts significantly influences interest rates as well as the financing of property purchases.