Loan-to-value ratio: loan value & purchase price / equity

Hello everyone,

I need some help with classification. Last year we bought a single-family house in the extended outskirts of Stuttgart that was comprehensively renovated in 2010/2011, originally built in 189X. It comes from the close family, purchase price €450,000. This is actually a quite reasonable price here. The plot is only 250 sqm, but due to the boundary construction, still >100 sqm of garden behind the house. Inside, 154 sqm of living space, two garages, utility room, storage room. In 2010/2011, everything was renewed including electrical, water, floors, bathrooms, etc.

We obtained a ridiculous €54,500 of own capital (more would have been possible, but why) and got an interest rate of 1.13% for 20 years (cooperative bank). What still makes me wonder is the loan-to-value ratio, ~140%. The bank assumes the restoration value of €320,000, including the low land value indices.

I don't really care about that, I could probably sell the building for a six-figure amount more at the moment... But I wonder how other people handle this. According to the textbook, don't you fill the difference between the lending value and purchase price with own capital? Compared to the purchase price, I didn't finance fully (€427,000 loan amount), but on paper there is roughly a 140% financing. For a reasonable purchase price for the region. Well, it is a love property with shutters and other outdated stuff :)

I wonder how other people do it. According to the textbook, shouldn’t you cover the difference between the lending value and the purchase price with equity?

... or you don’t buy a hobby property ;-) In fact, it is the case that you have to provide more equity or, if the bank is willing, pay a higher condition. Traditionally, it is said that the lending value is about 10% below the market value = purchase price/costs.

... or you just don’t buy a hobby property ;-)
In fact, it is such that you have to bring in more equity or, if the bank is willing to go along, pay a higher rate.

Classically, it is said that the lending value is about 10% below market value = purchase price/costs.

The hobby property comment was rather sarcastic from me, but maybe it really is the case. Although even the bank’s appraiser said that was a good price and that we could already sell it for much more now. That somehow doesn’t add up.

We also have an expert report; the €320,000 is the restoration value, the market value according to the report is €420,000, determined using two methods. That is from 2019. At that price, there are houses in this region, but if they are not completely renovated, meaning absolute junk that has to be torn down, they are listed at €350,000 and then put up for bidding.

I just wonder why a conservative cooperative bank would do an assumed 140% financing here and still grant me 1.13% interest over 20 years.

We also have an appraisal, the €320,000 is the replacement value, the market value according to the appraisal is €420,000, determined in two procedures.

However, the replacement value has nothing to do with the lending value. That is more relevant to insurance, where only the building value without the land is compensated in case of fire. The lending value is legally defined, as is the market value. Perhaps it isn't a 140% financing after all.

Replacement value has nothing to do with lending value. That is more related to insurance, where in the case of fire only the building value without the land is compensated.
The lending value is legally defined, as is the market value.

Maybe it isn’t even a 140% financing after all.

Yes, exactly, that is my question. Someone at the bank (yesterday, after a year, the bank’s appraiser came) maybe thought the house had not yet been fully renovated. The lady asked several times whether we had managed with the submitted costs and how great we had done it. She didn’t really realize that all of this had happened 10 years ago. The “submitted costs” were actually clearly recognizable as the extent of the renovation at that time, all nicely illustrated, and belonging to the submitted appraisal.

In the quick appraisal “back then,” the bank arrived at a lending value of €320,000, perhaps coincidentally corresponding to the replacement value in the appraisal. However, it was stated back then that despite the 140% financing, the conditions would remain at 1.13% interest p.a. for 20 years, and they stand by that.

For me, somehow all of this is a bit absurd, they can’t possibly work like this every day :)