Loan-to-value ratio

Lien Value - The lien value is the sustainable value of a property as determined by a bank, which serves as the basis for granting a loan. It is intentionally set below the current market value and is intended to ensure that the property provides sufficient collateral for the loan even in the event of unfavorable market conditions.

How the mortgage lending value is determined

The determination of the mortgage lending value is regulated by the Mortgage Lending Value Determination Ordinance (BelWertV). Banks and credit institutions use their own appraisers or automated valuation methods for this purpose. Unlike the market value, which reflects the price currently achievable on the market, the mortgage lending value includes a risk discount. This discount is intended to offset short-term market fluctuations and represent a value that is sustainable in the long term.

In practice, the mortgage lending value for residential properties typically ranges from 70 to 90 percent of the market value. The exact amount depends on various factors: location, condition, and age of the property, type of use, rental situation, and the general market conditions. For commercial properties or land in less desirable locations, the discount may be even higher.

Based on the mortgage lending value, the bank sets the so-called lending limit. At most financial institutions, this ranges between 60 and 80 percent of the mortgage lending value. Up to this limit, the bank grants first-lien loans on particularly favorable terms. If the loan-to-value limit is exceeded, the interest rate rises significantly, as the risk to the bank increases.

To simplify the formula: market value minus the risk discount equals the mortgage lending value. The loan-to-value ratio multiplied by the loan-to-value limit yields the maximum loan amount at standard terms.

Impact on the Interest Rate and Financing

The loan-to-value ratio has a direct impact on loan terms. The lower the loan-to-value ratio-that is, the ratio of the loan amount to the loan-to-value ratio-the more favorable the interest rate. Banks use tiers here: If the loan-to-value ratio is below 60 percent, borrowers generally receive the best interest rate (mortgage bond rate). Between 60 and 80 percent, the premium increases moderately; above 80 percent, significant interest rate premiums apply.

For buyers, this means: The more equity you contribute, the better the loan-to-value ratio and the lower the monthly payment. Even a difference of just a few thousand euros in equity can qualify you for a lower interest rate tier and result in significant savings over the entire 20-30-year term-often in the five-figure range.

Loan-to-Value Ratio and Energy Efficiency Standard

Since the introduction of EU regulations on sustainable finance (ESG criteria), banks have increasingly been taking the energy efficiency standard into account when determining the loan-to-value ratio. Buildings with poor energy efficiency (Class F, G, H) could face higher risk premiums in the future under the EU Action Plan on Sustainable Finance, as their value may come under greater pressure due to legal requirements (GEG, EU Buildings Directive). Well-renovated buildings with energy class A or B, on the other hand, enjoy more stable loan-to-value ratios. We recommend that owners view the energy efficiency of their property as an investment in its loan-to-value ratio.

Calculation Example: LTV and Credit Limit

Property: Condo in Nuremberg-Gleißhammer, purchase price €320,000, built in 2005, energy class C, rented.

Step	Value	Explanation
Market value (appraiser)	€320,000	Market-based purchase price
Risk discount (−15%)	−€48,000	Bank’s sustainability adjustment
Mortgage lending value	€272,000	Basis for loan calculation
First-lien loan amount (60%)	€163,200	Mortgage bond terms
Subordinated loan amount (up to 80%)	€54,400	With interest premium
Max. loan amount (80%)	€217,600	Closing costs (approx. €33,000) from equity
Required equity	€135,400	Difference between purchase price + incidental costs − max. loan

Practical Tip for Nuremberg and Franconia

In the Nuremberg metropolitan region, real estate prices are at a stable but varied level. In sought-after locations such as Nuremberg’s Old Town, Erlenstegen, or the premium areas of Erlangen and Fürth, banks tend to be more conservative in their valuations-precisely because purchase prices in these areas have risen particularly sharply, and banks are hedging against a potential price decline in a worst-case scenario. We recommend that buyers obtain an independent market valuation before applying for financing in order to realistically estimate the expected loan-to-value ratio. This way, you can avoid surprises when the loan decision is made and can plan your equity contribution precisely.

Frequently Asked Questions About the LTV

Why is the LTV lower than the purchase price?

The bank wants to ensure that it recovers the loan amount in the event of a foreclosure. Since real estate prices can fluctuate, the bank applies a safety margin. This risk margin is typically 10 to 20 percent and protects the bank from losses in times of crisis. In highly sought-after locations with overheated prices, the margin may be even higher because the bank realistically assesses the risk of a downturn.

Can you influence the loan-to-value ratio?

The loan-to-value ratio can hardly be influenced directly, as the bank applies its own valuation standards in accordance with the BelWertV. Indirectly, however, a property in good condition, complete and convincing documentation (current energy performance certificate, floor plans, lease agreements for rented properties, proof of modernization), and a solid rental situation can positively influence the loan-to-value ratio. We assist our clients in optimally preparing all relevant documents to achieve the best possible loan-to-value ratio.

Does the loan-to-value ratio vary from bank to bank?

Yes, each bank uses its own valuation guidelines within the framework of the BelWertV. Therefore, the loan-to-value ratio for the same property can vary depending on the financial institution-sometimes by 5-15%. We recommend obtaining multiple financing offers and comparing the underlying loan-to-value ratios. An experienced mortgage broker can solicit offers from a wide range of banks and transparently compare the terms to determine the best conditions for your property in the Nuremberg metropolitan area.

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