Is an already existing house considered as equity?

Hello everyone,
I am planning to buy a house in the future, will my already existing house (parents' house) be taken into account as equity for financing a new property? Would I therefore, for example, receive a lower interest rate for the financing?

Thank you

I have already written something about this in your other thread. As long as the property is unencumbered, a loan can be applied for on it. Unencumbered also means no right of residence for the parents.

Or else the right of residence takes second place!

Answer: Quite certainly - yes.

Calculation example:

Market value of new house: 300,000
Equity capital: 40,000
Loan-to-value ratio bank 100 %
100% because the equity capital goes towards construction/acquisition incidental costs and a safety margin is still calculated by the bank for determining the loan-to-value ratio.

Market value of parental property: 200,000

This results in the loan value running out at around 60% and the condition decreases by about 1 percentage point.

A few more considerations:

If the parents still live in the parental house and are also the owners, they must of course participate in the land charge registration. A right of residence would have to yield in rank.

The above outlined "total" solution is very nice from the bank's perspective because there is absolutely no risk for the lender. It is also the mathematically cheapest solution because the conditions can be pressed to the market floor. However, both properties are completely "expropriated" for this. For the future, there is no scope for design anymore.

Alternative approach: The loan-to-value ratio on the new house is higher, approximately 80%. As a result, the interest rate is moderately higher. The remaining 20% is then also financed in first charge on the parental house. The loan is significantly smaller and can be repaid quickly with a high initial repayment and/or special repayments. The house becomes free of encumbrances again quickly.

It is important that both loans are treated separately and no mutual linkage occurs. This way you secure financial flexibility. And if the parents should still live in the parental house, they can probably sleep more peacefully with a small loan on their house.

No one is expropriated. The second solution is certainly conceivable. But it does not create more leeway. After all, the "own" property is burdened more. It is only perhaps "nicer" for the parents. It just takes longer until the new property has more leeway again.

Regarding the value. If the market value is 300 TEUR, then the lending value is indeed around 360 TEUR. However, the total costs should be significantly above 300 TEUR, as the ancillary costs are not included in the market value.