Maximum loan-to-value ratio
The maximum loan-to-value ratio means the ratio of the loan to the fair value of the collateral lodged as security for the loan at the time of its granting. The maximum loan-to-value ratio is applied to loans granted for home purchases or basic renovations.
The maximum loan granted is 90 per cent (as of 20 December 2023) of the fair value of the collateral provided for the loan. When buying your first home, the maximum amount is 95 per cent (as of 1 July 2018).
Self-financed amount
The self-financed amount is the share of the home's price that the buyer must cover without taking out a loan. The self-financed amount can consist of your own savings or other real security.
In practice, this means that the home buyer must have at least 10 per cent (5 per cent when buying a home for the first time) of personal savings or other real security.
Example calculation of the maximum loan-to-value ratio for home loans
The home costs €100,000. The buyer has savings worth €20,000. They need a home loan worth €80,000. The maximum loan-to-value ratio of such a loan is 80% (80,000/100,000 * 100), which is compatible with the law.
However, it should be noted that the collateral value of the home to be bought is usually 70 per cent of its fair value. In other words, from the bank's perspective, the collateral value of the home is €70,000 (100,000 * 70/100).
If the home has been lodged as collateral, the collateral shortfall is €10,000 (80,000 – 70,000). A side collateral such as a guarantee is required. In the loan negotiations, your bank will review the need and availability of collateral with you in person.
Down payment
Down payment usually means the amount the buyer pays the seller in connection with a home sale. In other words, a down payment is used as collateral in home sales to ensure neither party can call off a deal without incurring financial losses.
