Loan to Value Query?

[jello1000]

Hi All,

Just a quick query. In relation to the following scenario, how is the loan to value calculated and what rate would apply?

A property is purchased off plans and contracts are signed etc. Assume property value is €300K (i.e. purchase price). At the time of signing mortgage approval for €276K was granted, (i.e. ltv 92%). Assume also that the property will not be completed for say 3 years into the future.

At the time of closing (i.e. 3 years later) the property is now worth €350K. Obviously the original loan offer will now have expired. My question is will/do the banks base the loan to value percentage on the original purchase price when assessing for the loan or is it based on the current market value of the property? For example 92% of the current market value would be €322K.

Would the banks lend this amount assuming other lending criteria and terms and conditions were met in relation to income, savings etc?, or would they only lend based on the original purchase price of €300K.

Thanks in advance,

Regards,

 

[ClubMan]

If the loan to value ratio is affected by appreciation in the market value between initial signing of the contracts and the closure of the sale then it may allow you to go back to the lender and negotiate a better rate based on the now lower LTV. However the lender will always limit the amount loaned based on the purchase price and not the market value at the time which may be higher as far as I know (I think that they are required to by Central Bank lending guidelines). This means that if the purchase price is €300,000 then the maximum you can borrow will be 92% (or up to 100% in the case of 100% mortgages) of this amount regardless of the market value at the time the sale closes.