In general, the mortgage lending value represents the value at which a credit institution can consider something as security for a loan. Most of the time, consumers deal with this term in a home loan. The mortgage lending value and its determination are regulated in Section 16 of the Pfandbrief Act. Among other things, the law states that the mortgage lending value must not exceed the sales price that can be achieved in the future.
- The mortgage lending value should remain valid in the long term. It is usually below the purchase price, as most lenders deduct a safety margin to compensate for possible market fluctuations.
- As additional security, many banks only grant their loans up to a certain lending limit.
- It can be worthwhile for buyers to determine the maximum loan-to-value ratio before signing the purchase contract in order to find out up to what limit the bank will be able to provide a loan.
The mortgage lending value of a property
Ideally, the mortgage lending value of a property would also correspond to the purchase price, but this is rarely the case. This does not even apply to a new building, as the mortgage lending value of a property does not take into account the fees for architects or engineers. According to abbreviationfinder, MLV stands for Mortgage Lending Value.
In the case of an existing property, the current market situation for property affects the purchase price. In addition, most lenders take a haircut, which can be anywhere from 10 to 25 percent of the sale value. This covers the possible market fluctuations that can occur during the term.
Mortgage lending value and market value
The market value of a property quantifies the sales proceeds that can be achieved at a certain point in time. The mortgage lending value, on the other hand, should be valid beyond the point in time at which it is considered. While the market value also factored in subjective snapshots, for example an above-average price increase in the real estate sector, the mortgage lending value reduces the value of the property purely to the substance. Of course, the location of the property is also included in the calculation, but the irrational moment of pricing in the markets is eliminated. The valuation takes place according to a certain scheme, which puts quality and construction in the foreground.
The lending limit
As an additional security, many banks only grant their real estate loans up to a certain lending limit. This differs depending on the bank and the type of loan security. This value determines the maximum possible loan amount.
For building societies and mortgage banks, the lending limit is 60 percent. This means that loans up to an amount of 60 percent of the mortgage lending value may be granted. This fact has to do with the great security of the Pfandbriefe issued by these companies for refinancing. For commercial banks, the lending limit is usually a maximum of 80 percent.
Classic real estate financing takes into account 60 percent of the loan amount via a mortgage bank as a senior loan and the excess amount as a so-called subordinate loan against an interest surcharge of 0.5 percent via an associated commercial bank.
What to do if the mortgage lending value is too low?
Assume that the purchase price of a house during a real estate boom is 300,000 euros, but the bank only sets the mortgage lending value at 200,000 euros. Financing would only be possible for a maximum of 160,000 euros. If the buyer only has 100,000 euros in equity, additional collateral must be provided. This could be life or pension insurance , for example . They have their own mortgage lending value, which is calculated based on their surrender value.
The mortgage lending value for additional loan collateral
Life insurance is often assigned to a bank as collateral. The loan value here corresponds to the surrender value. In the case of unit-linked policies, however, discounts of between 20 and 40 percent are made. The same applies if a deposit is assigned as collateral for a securities loan. In this case, the mortgage lending value is based on the division of shares, bonds and money market instruments.
Your own valuation is worthwhile
As a rule, the maximum loan-to-value ratio can only be determined once the bank has received all relevant documents for the property, including photos. It is critical that this is only the case when the sales contract has been concluded. It is therefore advisable for potential property buyers to inspect the property with an appraiser before signing the purchase contract. This can determine the mortgage lending value and thus make it clear to the buyer up to which limit the bank will be able to provide a loan. This money is in any case sensibly invested: Reversing the purchase contract would be more expensive and annoying.