Collateral value & equity

Good evening dear community!

I have been reading along in this forum for a long time and have followed various discussions and find this forum very informative and am grateful that I found it.

Thanks also first of all to the moderators who seem to jump into every thread, that really takes a lot of their time!

I am now reaching out to you because we (my girlfriend and I) want to build in the foreseeable future (2-3 years) and we are currently in the saving phase to create a solid equity base. However, we also do not want to save "too long" to still get moderate interest rates. But that is another topic.

Since I like to deal with this topic far in advance and have already gathered various information, I am still confused about the amount of the loan-to-value ratio that banks apply and what that has to do with the available equity. It is also unclear to me how the bank decides whether invoice X is deducted from the loan or must be covered by own funds?

I will give the following key data of an imaginary construction project as an example (it would be nice if it worked out like this for us):

Land: €120,000
Property transfer tax 5%: €6,000 (Equity)
Notary 1.5%: €1,800 (Equity)
Land registry 1.5%: €1,800 (Equity)
House connection/control shafts: €15,000 (Equity)
Soil survey: €1,500 (Equity)

Architect: €15,000 (Equity)

Construction costs (including incidental construction costs) for the house minus own work: €240,000 (including electrical and windows)

Kitchen: €17,500 (Equity)
Floors: €12,500 (Equity)
Interior doors: €8,000 (Equity)
Front door: €4,000 (Equity)
Fireplace: €7,500 (Equity)
Bathroom/WCs: €10,000 (Equity)
Various outdoor facilities: €10,000 (Equity)
Total: €470,600

The numbers are roughly estimated by me, the exact costs are not decisive for my concern (although I am interested in whether architects really cost that much).

According to my listing, everything marked with (Equity = paid by equity) would be paid by us and not financed by the bank. I hope I made no number mistakes.

So we would have raised own funds amounting to €110,600.
The total costs would amount to €470,600.
The financing gap would therefore be €360,000.

Therefore, I have the following questions:
1) How high would our loan-to-value ratio be then?
2) Depending on the answer, I then wonder how strongly that affects our loan (interest)?
3) Is a plot of land (new development area, recently developed) also only included in the loan with a loan-to-value ratio of e.g. 60-80%, even if the price per sqm we paid corresponds to the standard land value?
4) If I relate our equity to the total costs, that is a ratio of 23.50%? But since not all costs are “value-preserving” do we effectively have a lower equity ratio or loan-to-value ratio?
5) If the land were assessed not only at 80% but at 100%, that would strengthen our equity ratio or loan-to-value ratio, right? If so, is that how it is done in practice for land plots in new development areas (addition to 4)?
6) Is it common to count costs for floors, bathroom/WCs, doors, fireplace as equity or does the bank usually assume that is covered by the loan?

I thank everyone in advance who took the trouble to read everything :-)

And I look forward to any assistance :-)

I’ll try to answer "briefly."

1) Always assuming that the bank accepts the same value as you do for material and/or services
240,000 house construction
120,000 plot of land
30,000 house connection and architect
42,000 various interior materials
---------
432,000 market value
minus some discount because it differs from bank to bank.
Then the lending value could realistically be around 400,000 euros.
You can find details by searching Google for "BelWertV"

You can disregard the kitchen (and small things like paint, carpets) in all calculations and also set them aside from your equity. Because you have to pay for them anyway.

2) 100/400*360=90
Very bad interest rates occur above 100, fair rates between 80 and 100, good rates below 80, and top rates below 60. These are the loan-to-value ratios that you can also find in various credit calculators online. My recommendation is to somehow come under 80 if you can manage that by saving.

3) How do you get the discount on the lending value? The plot is usually valued at the amount it actually sustainably has according to the official land value map/committee. A discount on the plot is unusual unless it was purchased too expensively (due to wwi). Otherwise, see the Google hint in answer 1) §15 + §20

4) You have correctly identified that. The kitchen is removed, as well as non-value-retaining payments such as notary, court, and taxes. Whether something like a soil survey should be included or excluded can certainly be debated, but the ratio shouldn’t fail because of that. Basically, you have a value-retaining ratio of 10% (+ incidental costs + kitchen + paint etc...)

5) Has basically already been explained.

6) In the long run, it doesn’t matter whether the equity is used for the foundation slab or the interior doors. After completion, no one cares anymore. However, banks want the customer’s equity to be used as much as possible at the beginning. This reduces the bank’s risk during the construction phase. I think that is understandable.

Architect: €15,000 (equity)

(...)

(I would be interested to know whether architects really
cost that much).

Well, with the estimated costs and depending on the assignment (all service phases), you are certainly looking at more than double your estimated €15,000. Just google HOAI calculator - if the architect charges according to that (which he actually has to).

So with the estimated costs and depending on the commission (all service phases), you are certainly at more than double your estimated 15,000 euros. Just google HOAI calculator - if the architect charges according to that (which he actually must).

15,000 EUR is completely unrealistic. Calculate with 11% of the construction costs for all architect and engineering services.

Regards, Steffen

No, it is not unrealistic! Just not allowed :)

No, it’s not unrealistic! Just not allowed :)

I boldly assume that the OP wants to work with a reputable architect :)