The regulation governing loan-to-value ratio for home loan also requires banks to grant a specific amount of home loan, which means that it determines the maximum loan-to-value ratio. The maximum loan-to-value ratio is applied to loans granted for home purchases or basic renovations.
Maximum loan-to-value ratio and the self-financed amount
The maximum loan granted is 90 percent (as of 20 December 2023) of the fair value of the collateral provided for the loan. When buying a home for the first time, the maximum amount is 95 percent (as of 1 July 2018). In practice, this means that the home buyer must have at least 10 percent (5 percent 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 home buyer's self-financed amount is €20,000. They need a home loan worth €80,000. In this case, the LTV ratio is 80% (80,000/100,000 *100), which is compatible with the law.
In this case, it should be noted that the collateral value of the home to be bought is usually 70 percent of its fair value. When the home has been lodged as collateral, the collateral shortfall is €10,000 (80,000 - 70÷100×100,000).
An example of side collateral is guarantee.
In the loan negotiations, your bank will review the need and availability of collateral with you in person.
