If I draw an interim conclusion, which is essentially based on the statements of the user nordanney (thanks), then there are no legal regulations that every bank is required to apply mandatorily regarding the granting of credit. This is already pleasing since it means there is a certain scope for negotiation. Of course, every bank has its internal guidelines, which can sometimes differ significantly; that is clear.
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Just for understanding:
It would therefore be legally compliant with banking supervision law if a bank granted a homeless person without income and without equity a loan of 1,000,000 €? It is self-evident that no bank would do that, but the bank would not get into trouble with any credit supervisory authorities because of that. Is that correct?
Now to the specific requirements at your bank, especially regarding the required annuity of 6%:
I assume that this 6% annuity does not only refer to the new loan to be taken out, but also to all existing loans (with fixed interest rates). (Otherwise, the situation would look significantly better for me).
So concretely:
Total loan amount: 535,000 €. 6% of that is about 32,000 € per year or approximately 2,670 € per month. Both rental apartments generate a monthly rent of about 1,850 € (very conservative; I could even increase the currently received rent). Of that, 80% will be credited, so about 1,480 €, which I also have roughly available for loan repayment. This leaves a difference of almost 1,200 € or roughly 14,500 € per year.
I also receive dividend/income from interest (I completely exclude capital gains here, or are they also counted as income by your bank (e.g., for accumulating bond funds, which per se generate no ongoing income?)). Last year, that was about 5,000 € or a bit more than 400 € per month.
What I forgot: I also inherited and receive rental income from shares of fully paid-off properties of about 500 € per month. So the bank would credit about 400 € per month. And then I also receive about 200 € per month in the context of this inheritance settlement (there are no notarized contracts for this, but I actually receive this amount). Or would something like that not be credited by the bank?
By my calculation, I would now have ongoing bank-relevant income of about 2,480 € without pension payments. So about 200 € per month are still missing to guarantee this 6% annuity.
Now I simply say: I need 1,300 € for living, I can allocate these 200 € from the pension for your hypothetical 6% annuity.
Or how much does your bank reckon as necessary to live on per month (for someone who does not have to pay rent)?
(And another possibility: Since not all periods are probably considered yet, the pension amount could still rise somewhat; but that is currently in process and not yet certain)
From my point of view, the conditions regarding your capital serviceability requirement of a 6% annuity are met. Or would the conversation already end after a few minutes and no loan would be granted to me with you?
If yes, what exactly would be the reason for that?
Now I come back to my planned holding period of 7 years:
I am aware of the tax issue with the 10 years already, but I initially limited myself to the variant where the bank would be most likely to grant a loan (which would be more likely with a planned term of 7 instead of 10 years).
What I still fundamentally do not understand:
Why can certain pledged valuables not be used as a substitute for ongoing income regarding the 6% annuity?
For example
1.
The brute force method: I pledge the bank 100,000 € in cash. (--> of course, this makes little sense since this money then does not work for one but rather may even incur penalty interest). The loan repayment for the next 7 years would thereby be guaranteed without ifs or buts. (Because of the inheritance matters, considerably less would be necessary, the 100,000 € is purely based on the annual difference of 14,500 €, i.e., if only the rental income from the mortgaged / to be charged property is taken into account).
2.
I pledge my life insurance. I do not want to touch that until maturity anyway. And additionally a conservative investment fund. Or is this life insurance too illiquid to guarantee capital serviceability?
Or is the bank legally obligated (/according to internal guidelines) to assume that the loan must be continuously serviced until final repayment, even if the customer repeatedly points out, despite immorality, that he only wants to hold the property for 7 years?
If the bank would agree to such an approach, I would also inquire about a corresponding 10-year term variant.
Basically, I must state that at your bank probably half of my acquaintances whose income and credit situations I know would not have gotten a loan from you (because of this 6% annuity). In particular, the mentioned 5-million loan investor would not have gotten a loan, and he has loans with various major banks (but not with mine). Are these 6% annuities fixed as definitive exclusion criteria at your bank or how does the situation look if now it turns out for an interested party that they would reach an annuity of 5.8%? Do they irrevocably get no loan or do they get one with somewhat worse interest rates, or is an eye sometimes turned and the interest rate would be the same as if they reach a 7% annuity?
@everyone:
Which specific internal bank regulations are you familiar with regarding capital serviceability?
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Ok, I will look at this group to see if I get more information.
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What exactly should I ask my acquaintance? I already talked to him about my situation; he does not know the credit granting guidelines in my situation any better. However, he has always gotten a loan without problems. But you are supposedly a banker and therefore should be very familiar with the situation, but unfortunately, your posts do not really help me.
In general:
I want to avoid fundamental discussions about the sensibility of this planned action. Just so much: I am almost certain that prices will continue to rise soon in metropolitan areas (where I intend to buy) (except for terrorism like atomic bombings or poison gas attacks, etc.; but then other matters would have priority than discussing the profitability of investments – if one would even be able to achieve anything at all then).
On the one hand, practically everyone who gets a loan today buys instead of renting (or many former bond investors are now investing in real estate because of the meager interest rates), and since the ECB should remain with its low interest rate policy for a while, this purchasing trend should continue. On the other hand, in metropolitan areas, as opposed to greenfield sites, everything is already largely built up, so hardly any more real estate supply can come about; at the same time, existing companies expand / new ones settle here, i.e., more workers are needed; but people also become lazier, traffic jams increase, etc., so demand for real estate in metropolitan areas tends to rise, which leads to higher prices, even though so-called real estate experts have continuously regarded prices there as too high for over 25 years, during which I have tracked the development. But reality proves the opposite. I am convinced that on balance already, expensive real estate by price per square meter will become even more expensive and already cheap real estate rather cheaper. (there are exceptions here).
In a few years, interest rates should again be at historic averages; prices will rather stagnate, but rents will rise significantly. And if a strong recession with significant real estate price declines really came, one still has profits already earned through the repayments made or the higher rent compared to interest, repairs, etc. Moreover, such a recession does not happen overnight, and if indicators deteriorate, one can very quickly sell real estate in metropolitan areas again. And if all goes wrong, you lose money. The risk-return ratio of such a debt-financed real estate investment is currently extraordinarily higher than in any other asset class. (20% equity return is no rarity there).
But I would prefer if the discussion were limited to banks’ credit granting practices.