Pledge exchange - is it possible to have two banks in the land register?

Good day,

we have a brief question regarding the collateral exchange in the context of purchasing a house and would be grateful if someone knowledgeable could tell us something about it.

We own a house with an outstanding loan of €130,000 (initial loan amount – €220,000), taken out four years ago, so not yet fully repayable (but we couldn’t do that anyway). The interest rate was only 1% back then, so it is a very good loan since the interest rate turnaround. The interest is fixed for a total of 15 years.

We have been looking for a new house or plot of land for a year. This will in any case be somewhat more expensive than the current one, as we want to move closer to the city. The financial advisor calculated the situation “buy land and build new” for us before the interest rate turnaround, at the end of 2021, based on a property which we, however, did not buy due to lack of buildability (tree stock), with bridge financing and an additional loan etc. We were supposed to repay the old loan after selling our current house, including a prepayment penalty. Which perhaps was not a particularly good idea at the time and rather met the advisor’s wish for a higher commission. We did not know the collateral exchange as an option back then at all.

But well – interest rates were also quite similar and low at that time. Now, where the interest burden is at least 3.5%, we would of course prefer to keep the old loan and transfer it to the new property. This minimizes the interest costs of an additional loan that we will also need (besides the bridge financing), since the new property value will be higher than the current house.

Now my question:

Can we apply for the new loan as well as the bridge financing at another bank, which is cheaper for us than Sparkasse, when doing the collateral exchange through Sparkasse? Because after the collateral exchange, there would be TWO banks listed in the land register; do the banks even allow that or would we not get a new loan at another bank if the previous Sparkasse is also listed in the land register because of the collateral exchange? In other words, are you basically forced by the collateral exchange to also take out the new loan with the bank doing the collateral exchange? Or can two banks be listed in the land register and do they “not mind”?

Figures: current house value €700,000, outstanding debt €130,000, 1% interest rate new house (or land + building, obviously then the bridge financing is more expensive, but you really can’t choose around Berlin, the market is still bare) approx. €850,000. According to a financial advisor, the interest rate for the additional costs would currently be 3.5% for us.

I sincerely thank you for your feedback!

Several points on this:

1.) The bank must first agree to the pledge swap; in this context, the lending value plays a particularly decisive role.
2.) If the pledge swap goes smoothly, the bank will of course primarily appear in the land register with this loan amount -> another bank would then have to take a subordinate position. So yes, it is possible to have two banks in the land register, but attractive interest rates will probably not result. If you still want to obtain offers there, mention that you want a subordinate loan; many banks will quickly drop out or significantly increase the interest rate.

The cheapest option could therefore be to keep the existing loan and take out an additional loan from the same bank, if that is an option. The resulting blended interest rate could overall be more attractive than a completely new loan from a bank that seems cheaper at first glance.

In my opinion, there is no way around a conversation with the bank to explore the different possibilities. Especially the topic of pledge swaps is very individual and there is no (clear) legal entitlement to it, but especially with smaller houses, an interesting negotiation approach can arise.

Thank you very much for this very quick and well-founded feedback!

Regarding 1) - the value of the new house or property including construction will certainly be higher than the value of the current house, as we want to move closer to Berlin - by loan value you mean this house value, correct? Point 1) should theoretically work then.
Regarding 2) - thank you, this is valuable information for us, that the second bank charges for subordination with the interest rate increase. Pity but understandable (it would be interesting to know by how many decimal places this might be.. hopefully not whole percentages). Therefore, the actual comparison with the Sparkasse will make sense. Provided they even approve a bridging loan as a type of credit, because we would need that then as well.

I have one more question that might put the whole situation in a somewhat different light. However, it was important to me to start from the worst case with the first question and to inquire about the possibility of transferring the lien to the new house.

However: in addition to our house, we own a fully paid-off condominium (90 sqm, old building, very good location in a big city). This is not to be sold. It was currently valued at €500,000 (of course the current situation might reduce the value somewhat, so this is just a reference in comparison to the value of the currently pledged house (€700,000)).
We now want to try to transfer the house loan to the condominium already now, which would reduce the interest costs of the second loan but would make the situation with two banks in the land register of the new house unnecessary. However, this condominium is cheaper than the pledged house. I don’t know if this is assessable for you, but from your point of view, would there be a chance with these figures (outstanding loan €130,000, initially €220,000) to get the lien exchange approved despite the lower value of the condominium (at the Sparkasse)? .. or does it almost never work if the value of the new collateral is not at least equal, regardless of the amount of the outstanding loan?..
We will of course try it anyway, but would be grateful for the first estimates from the professionals :)

Thanks again very much!
Natalie

Now this apartment is cheaper than the mortgaged house.

It is currently estimated at €500,000

Remaining loan €130,000

Actually, it is sufficient if the apartment is worth more than the remaining loan after all safety deductions. So the numbers mentioned fit comfortably. But as said, in the end the bank always decides taking into account all other conditions unknown here. The approach sounds the most sensible this way. Maybe the Sparkasse also offers good conditions for the new house, usually you can negotiate quite well with them. Once the competing offer is on the table, they like to match it. With an additional contract conclusion, the bank is more motivated to carry out the lien exchange.

It is basically not about the absolute value of the security.

Ultimately, the interest rate is determined based on the loan-to-value ratio. For example, if at the time of purchase (!) you had a loan-to-value ratio of 50%, then the remaining debt for a collateral swap should not exceed 50% of the new object's value.

But this also varies from bank to bank and is only a guideline. As the previous speaker already said, there should be no problems with the securities.

Good morning, I sincerely thank you for the feedback and the assessment. It at least sounds worth a try, hopefully it works out, it would be a good feeling to be able to continue at least part of the new financing under the old conditions, given the current interest rate turnaround.

Ultimately, the interest rate is determined based on the loan-to-value ratio. For example, if at the time of purchase (!) you had a loan-to-value ratio of 50%, then the remaining debt for a mortgage swap should not exceed 50% of the new property's value.

Perhaps a quick follow-up question regarding the mentioned loan-to-value ratio: since we are not currently purchasing our apartment anew, so there is no sale price available, even though the market value can be quickly estimated (since it's Berlin) and has been quite consistently assessed by three realtors, the bank would have to appraise the apartment itself - how do they do this and can they arrive at a value significantly below the market value? If the bank generally applies a very pessimistic estimate for the properties, significantly below the market price, it could happen that the apartment would not have nearly the same loan-to-value ratio as the house at the time of purchase/construction (back then the loan-to-value ratio was just under 40%). How do banks appraise properties for which no current sales brochure is available because they are not for sale at the moment, as in our case?

Thank you!

Also thanks for the tip to negotiate with the Sparkasse if it doesn't work out with the apartment. Good to know that banks are generally open to negotiation.