Follow-up financing - building value / loan-to-value ratio

Hello to everyone here who is knowledgeable,

so far I actually thought that follow-up financing would be the simpler financing option, but I am currently being proven wrong. Maybe someone here has one or the other tip. Especially regarding the valuation of real estate.

We own a former small multi-family house in an almost downtown Cologne location (directly behind the green belt in 50823), which was renovated and converted back to a single-family house as originally intended. The renovation took place from 2011-2014. The building is a listed monument (original construction year 1890), but basically only the exterior walls remained, part is even a complete new build, as the substance could not be preserved. All in coordination with the authorities. The pure construction costs of the renovation were over 700,000 euros, excluding the purchase price. Plot with garden almost 300m². A gem in terms of location, a rarity besides, who can call a garden in the city center their own. Ecologically high-quality renovated, with lime plaster, high-quality bus system as electrical installation, room-length new oak floorboards, underfloor heating throughout the house, thermal & sound insulation glazing, central ventilation system,...! It was also renovated into an energy efficiency house (not a monument) and has a value of under 70kWh/(m²*a). Living space according to WoFIV of 235m² (then without basement, ...) or DIN277 of 295m². Everything can be proven, all documents are available to the banks, including extensive documentation of the renovation. Insurance-wise, the building is even classified as a new building, and accordingly the insurance rates for the building insurance are set.

We want to follow-up finance just under 400,000 euros. The amount is divided into four loans, which should be consolidated into three. It should be noted that due to higher renovation costs and the refinancing of one of the loans, one loan must be concluded as a forward loan (for 2024). The offer from our current bank is between 1.1-1.3%, however, they do not want to combine loans and have also priced in the early termination risk of the forward loan. Which is possible if I stay with the current bank, since the fixed interest period already begins on the day of signing the new loan agreement. Therefore, we wanted to change banks and have obtained offers.

We now have offers on the table with a mixed interest rate of 0.8 to 0.9% at 4% repayment and different loan terms between 12 and 15 years. So that the interest rate expiration dates are closer together. The installment as before. When it comes to the final phase, we actually have the problem with the banks that the feedback is that the stated value of the building does not correspond to the market value.

Reason: The building dates from 1890 and it is a terraced middle house (where in city center locations are there detached single-family houses??). According to their systems, the requested financing would have a loan-to-value ratio of 100%. They thus basically assign the building a value of just under 400,000 euros. So originally we had financed well over 100%. How do I get the banks to apply a realistic value here? Alone the land value according to the expert committee is just over 1000€/m², none of this adds up. Purchase prices per square meter here are between 4,000-6,500€/m². Even with the pessimistic assumption, the banks' valuation does not fit. What exactly am I overlooking? Or is this a tactic to get higher interest rates with relatively low risk? The bank for which we are currently leaning had even initially granted an interest rate discount for the good efficiency rating.

I have to deal with them at the beginning of the week. I am now also under time pressure because I have to actively terminate one of the loans by January to be able to consolidate them. Would be grateful for tips and arguments.

That the banks now even want pension statements (by the way we are about 40 years old) and land register documents of a debt-free condominium is also somehow somewhat odd…

Thanks for tips.

Best regards
bolitho

Reason: The building was built in 1890 and it is a mid-terrace house (where in city center locations are there detached single-family houses??). According to their systems, the requested financing would have a loan-to-value ratio of 100%.

It only ran through the machine. Then the value drops drastically with that age. Only a personal conversation with proof of renovation work helps. Then it should fit - no matter which bank.
However, for example, ecological renovations do not increase the value of the property. The demand group for such "specialties" is small. The average buyer is not really interested in that when purchasing. Similar to floorboards - you will never get the extra price back.

The building is thus practically assumed to have a value of just under 400,000 euros.

That is not correct. It is about the LOAN-TO-VALUE value, not the market value – which can be significantly higher.

That the banks this time even want proof of pension (by the way, we are about 40 years old) and land register documents of a debt-free condominium is also somewhat strange …

Not strange. Nowadays normal.

It only went through the machine. Then the value drops drastically at that age. The only help is a personal conversation with proof of the renovation work. Then it should fit - regardless of the bank.

Ah, ok. However, they have all documents regarding the renovation on file, including photo documentation, building plans, energy certificate, ... so it’s worth reconsidering the matter. One has to wonder if no one is actually looking at this. So they would actually have to accept something like "reconstruction" with the date 2014 to somehow get it into the machine?

However, for example, ecologically renovated does not increase the value of the property. The demand group for such "specialties" is small. The average buyer is not really interested in this when buying. Similar to the floorboards - you never get the extra price back.

That the word "ecological" is just a "buzzword", fine by me. :-) I can live with that. I personally do value indoor climate and such. However, the renovation is high-quality and I think it does make a difference whether I have PVC, laminate, or solid wood floorboards heated by underfloor heating in the building, or whether the walls have gypsum or lime plaster with a smooth finish. Then, in case of doubt, you just don’t sell to an "average buyer". However, that is not planned in the long run anyway. :-) But certain materials also require construction chemistry in a renovation. Gypsum plaster on single-shell clinker brickwork is not necessarily the best idea. But those are different issues.

That is not correct. It is about the LOAN VALUE, not the market value - which can be significantly higher.

That means the bank applies a risk deduction. How high is this usually? Because even with a 20% deduction they would have set the market value way too low. Unless the assumption of a drastic drop in value due to the "machine" is correct. The current bank has evaluated the building twice, before purchase and after completion of the renovation, and apparently made a much better assessment.

Not odd. By now normal.

Well, last time this was actually a lottery here and the bank still had no problems with it. Unrenovated house, nothing done for 60 years, estimated renovation costs. Financing as purchase price + renovation costs. That was apparently easier to classify than a finished building with good documentation.

I will then go into seclusion with them tomorrow.

Thanks for the information

So they would actually have to accept something like "reconstruction" dated 2014 to somehow get it into the system?

Exactly. There is a point table for completed renovation measures. From that, a fictitious construction year can be generated (in your case, for example, 2014 – or with a safety buffer somewhat older).

So the bank makes a risk discount. How high is this usually? Because even with a 20% discount, they set the market value way too low.

Normally between 10 and 20%.

Well, last time this was actually a bit of a lottery and the bank still had no problems with it. Unrenovated house, nothing done for 60 years, plus estimated renovation costs. Financing as purchase price + renovation costs. Apparently that was easier to classify than a finished building with good documentation.

You have to separate the house and personal creditworthiness. Both are reviewed and nowadays (banks) have to also look at a period during retirement. Whether the installment is still affordable then. So it has nothing to do with the house as collateral. If you have no liquidity, tied assets won’t help.