What are the new measures concerning the conditions for granting loans to finance the acquisition of property?
The primary objective of setting new standards is to limit the emergence of excessive household debt, which remains a factor in reducing the consumption and savings necessary for robust economic growth. It will also help to restrict speculation.
The LTV (Loan-To-Value) ratio, which the recommendation invites the CSSF to put in place, describes the ratio between the sum of all loans or tranches of loans granted to borrowers of residential real estate and the value of the property at the time of loan origination. This LTV ratio is differentiated according to several socio-economic criteria.
The general principle is to set a maximum limit of 80% for the LTV ratio for all loans, including those for rental investment (buy to let). However, the CoSR recommends to the CSSF to allow lending institutions to derogate from this principle by setting specific limits for first-time buyers as well as for other buyers of a principal residence.
Indeed, the measure taken by the CoSFR does not aim at depriving young households of the possibility to acquire a principal residence. Lending institutions may continue to grant loans to first-time buyers covering up to the full value of the property, without, however, going beyond an LTV ratio of 100%, where this does not compromise their own solvency or that of the borrowers.
A maximum limit of 90% LTV is introduced for other buyers of a principal residence, i.e. those who already own their principal residence and wish to acquire a new one. This limit can be increased by the lending institution under certain conditions to 100%.
The measures are planned to be activated from 1 January 2021. They are in line with the recommendation of the European Systemic Risk Board (ESRB)