Maximum loan-to-value ratio, i.e., how much home loan can I apply for?

There are many factors to consider when planning to buy a home or pay for its basic renovation. One factor is the amount of funds that need to be saved for the project i.e., the self-financed amount. This affects the amount of home loan you can apply for.

The act governing loan-to-value ratio for home loan also requires banks to grant a specific amount of home loan, which means that it determines the maximum loan-to-value ratio. The maximum loan-to-value ratio is applied to loans granted for home purchases or basic renovations.

In this article, we will describe what is a maximum loan-to-value ratio, which refers to the amount of home loan you can apply for, and how you can calculate the amount of money you need to save before buying a home.

Maximum loan-to-value ratio and the self-financed amount

The maximum loan granted is 85 percent (as of 1 October 2021) of the fair value of the collateral. When buying a home for the first time, the maximum amount is 95 percent (as of 1 July 2018). In practice, this means that the home buyer must have at least 15 percent (5 percent when buying a home for the first time) of personal savings or other real security.

Example calculation of the maximum loan-to-value ratio for home loans

The home costs €100,000. The home buyer's self-financed amount is €20,000. They need a home loan worth €80,000. In this case, the LTV ratio is 80% (80,000/100,000 *100), which is compatible with the law.

In this case, it should be noted that the collateral value of the home to be bought is usually 70 percent of its fair value. When the home has been lodged as collateral, the collateral shortfall is €10,000 (80,000 - 70÷100×100,000).

An example of side collateral is guarantee. Read more about guarantees.

In the loan negotiations, your bank will review the need and availability of collateral with you in person.

The loan-to-value ratio means the ratio of the loan to the fair value of the collateral of the loan at the time of its granting.

The act governing loan-to-value ratio applies to loans granted for the purchase or renovation of a home for which the home is lodged as collateral. The law applies to loans that have been taken for the purpose of buying one’s own permanent home, a buy-to-let home, or a holiday home.

The act governing loan-to-value ratio helps the authorities to curb excessive household leverage and to prevent an increase in home prices and mortgage lending considered excessive, or other risks threatening the stability of the entire financial system. The act entered into force on 1 July 2016.

Banks are obligated to comply with the loan-to-value ratio specified in law. It can be exceeded only in cases specifically permitted by the Financial Supervisory Authority, such as temporarily in situations where homes are exchanged. In addition to the LTV ratio, the bank’s own collateral requirements may affect the amount of collateral needed for the loan.