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On 1 July 2016, the LTV Act entered into effect. Rates apply to credits given for the sale or refurbishment of a house for which the house is pledged as security. There is no meaning to the use of the house, i.e. the Act does not only apply to credits taken out to buy a house of one's own, but also to those taken out by a house to buy and a cottage.
Loan-to-value or LTV value is the relationship of the loan to the actual value of the underlying assets at the grant date. The LTV ratios may be calculated on the basis of all collaterals provided by the borrower or another individual, such as owner-occupied dwellings, investments and transferable stock.
For example, a warranty cannot be considered. Normally, a loan can amount to a maximal of 90% of the actual value of the security. In the case of a home loan taken out by a first purchaser, the ceiling is 95%. In order to mitigate any abnormal rise in the risk to the stability of the Communities' finances, the Supervisory Authority may not lower the abovementioned ceilings by more than 10 points.
Effective July 1, 2018, the Financial Supervisory Authority resolved to reduce the LTV ratios for credits other than initial sales by five percent from the usual 90% to 85%. LTV for credits given for the acquisition of a first house was kept at the 95% mark.
If, for example, a home purchaser only protects his home loan with the house to be purchased, he must now have at least 15% (5% for first-time buyers) of the sales proceeds savings. Nevertheless, the LTV ratios are still legally valid and therefore obligatory for the bank - they can only be breached in cases expressly approved by the financial supervisory authorities, e.g. temporary housing exchanges.
As well as the LTV ratios, the Bank's own security requirement may influence the amount of security required for the loan. Sample for the calculation of the LTV value: He or she needs a mortgage loan of 80,000 Euro. The LTV rate in this case is 80% (80,000/100,000 *100), which is consistent with the Act.
Usually the security accepted by the banks is 70% of the actual value of the house, so the security gap after the pledge of the house is 10,000 Euro (80,000-70/100* 100,000), which usually has to be secured by extra security.