The Beleihungswert and what it decides about your rate.

Mortgage lending value is not market value

Market value describes what a property achieves today. The Beleihungswert describes something else: what it would still achieve once the market has turned. The two figures answer different questions, which is why they diverge.

The regulation is unusually clear about this. Under section 3 BelWertV, the Beleihungswert is the value that can be expected to be achieved on a sale throughout the entire term of the loan, independent of temporary, for instance cyclical, fluctuations in the relevant property market and with speculative elements excluded.

That single sentence explains the whole gap to the purchase price. A purchase price arises from today’s supply and demand, from location premium, sometimes from a bidding process. Those are precisely the components the bank has to strip out. It does not ask what someone is willing to pay today, but what the property would carry if it had to be realised years from now.

The regulation additionally requires future saleability to be assessed on the basis of the long-term, sustainable characteristics of the property, normal regional market conditions and current and possible alternative uses, all within a prudent valuation. The word prudent is an instruction, not a figure of speech.

How a property is assessed independently of this is a separate topic, covered in the guide on property valuation.

How German banks determine the value

Three methods are available. Which one is used depends on the property and its use, not on the lender’s preference.

• Comparative value method: based on prices actually achieved for comparable properties. Typical for apartments and standardised terraced houses, where enough comparable sales exist.
• Income approach: based on sustainably achievable rent. Typical for let properties and apartment buildings, where income determines durability of value.
• Asset value method: based on land value and construction cost. Typical for owner-occupied houses and properties without a comparable market.

For many properties two methods are calculated and cross-checked. An owner-occupied house in an active regional market can be viewed through both the asset value and the comparative approach, and the bank decides which result it follows.

A safety deduction is then applied. It is not a fixed quota but follows from the regulation’s requirement of prudence. In practice, figures are cited under which the Beleihungswert often lands between 70 and 90 percent of the purchase price. That is a widely reported observation, not a rule, and individual cases can differ considerably.

What the BelWertV prescribes

The Beleihungswertermittlungsverordnung, abbreviated BelWertV, is the legal framework for the entire valuation. It is addressed to lending institutions rather than buyers, and that is exactly why it is worth a look: it shows why the bank calculates the way it does.

It governs the definition of value itself, the permitted methods, requirements for appraisal reports and the qualification of surveyors. The regulation is freely available; the full text of the BelWertV is published in the official legal database.

For most private financings one provision matters most, because it decides whether a full appraisal is produced at all. Under section 24, a report may be waived for residential property located in Germany if the loan amount to be secured, including all prior charges, does not exceed 600,000 euros. This threshold is known as the Kleindarlehensgrenze, the small-loan limit.

In practice this means that below the threshold many institutions use simplified procedures, often without a site visit. If you are surprised that nobody inspects the property, this is the explanation. Conversely, an inspection is not a vote of no confidence but usually a question of scale.

Lending limit and loan-to-value ratio

Two further figures derive from the Beleihungswert. Both come up constantly in financing conversations and are easily confused.

The Beleihungsgrenze, the lending limit, is the share of the mortgage lending value a bank will accept as first-ranking security. It is set by the institution and typically sits between 60 and 80 percent of the Beleihungswert. Anything beyond it is not automatically refused, but it is priced differently.

The Beleihungsauslauf, the loan-to-value ratio, is a figure describing your specific case. It states what share of the mortgage lending value your loan represents. A loan equal to 60 percent of the Beleihungswert means a ratio of 60 percent. This is what bank staff mean when they speak of 60 percent lending.

The reference figure matters. The ratio is measured against the Beleihungswert, not the purchase price. Because the Beleihungswert is lower, the ratio comes out higher than a calculation based on the purchase price would suggest. Anyone budgeting from the purchase price systematically underestimates their ratio. How much equity to plan for is covered in the guide on equity.

Why the ratio decides your interest rate

For the bank, the loan-to-value ratio is a measure of risk. The smaller the loan relative to the mortgage lending value, the larger the buffer should the property ever have to be realised. Institutions do not price this continuously but in steps.

Tiers at 60, 80 and 90 percent are common. Up to 60 percent the best terms usually apply. Between 60 and 80 percent conditions remain good, with small surcharges. Above 80 percent the surcharge becomes noticeably more visible; figures in the order of 0.15 to 0.45 percentage points are cited. Which tiers a given institution applies, and how large the surcharge is, remains a matter for that lender.

One practical consequence follows from the steps. If you sit just above a threshold, comparatively little additional equity can move you below it and secure a full tier of better pricing. Whether that pays off depends on how far you are from the threshold and what the equity would otherwise have to do. For a first orientation there is a calculator on this site; the binding calculation happens in conversation.

What the tier logic means for your specific financing depends on the property, your income and the term you want. No general statement about your rate can be derived from it. How a mortgage is structured overall is described on the corresponding service page.

When the valuation comes in below the purchase price

So far this has been about systematics. Now to the case that raises the most questions in practice: the bank does not reach your property value. The contract is drafted, the price negotiated, and suddenly money is missing because the bank applies less than agreed.

The first and most important point: there is no objective Beleihungswert. The BelWertV sets a framework, but within that framework each institution decides on method, data basis and deductions. The same property is therefore valued differently from bank to bank. This variation is not arbitrariness but a consequence of differing risk policy and differing data.

This is exactly where perspective differs. A single bank knows its own valuation. ME Finance submits the same property to several institutions and therefore sees how differently the same property is assessed. A low figure or a refusal at one house says little about how another will judge the same case.

Several routes follow from this, and they can be combined:

• Approach several institutions, because methods and data differ.
• Reduce the ratio, through additional equity or a smaller loan amount.
• Bring in further collateral, for instance a second, unencumbered property.
• Check the basis of the valuation, since floor area, year of construction, condition and modernisation all feed in and are not always recorded correctly.

The last point is often overlooked. If the bank calculates with an outdated floor area figure or without knowledge of recently renewed building services, that is not a valuation problem but a documentation problem. What helps is set out in the next section. What to do if it still does not add up is covered in the guide on a declined mortgage application.

Which documents the bank needs

The quality of the valuation depends on the quality of the documents. Where information is missing, the bank calculates prudently, and prudently always means lower. Complete documentation is therefore not a formality but a lever on value.

• Land register extract, including any rights and encumbrances recorded in section II.
• Floor area calculation, ideally following a traceable method.
• Floor plans, sections and elevations, plus the declaration of division for apartments.
• Energy performance certificate and evidence of modernisation in recent years.
• Current photographs inside and out, particularly where no inspection takes place.
• For let properties, the tenancy agreements and a schedule of actual rental income.

One question comes up regularly in this context: who actually pays for the valuation report? The valuation is carried out in the bank’s own interest and is at the same time a regulatory obligation for the lender. The Regional Court of Stuttgart concluded in 2007 that valuation fees may not be passed on to the borrower through general terms and conditions. The decision is recorded as LG Stuttgart, judgment of 24 April 2007, 20 O 9/07 and was confirmed by higher courts, including the Higher Regional Court of Düsseldorf. Whether a specific clause in your contract is caught by this is a legal question and should be reviewed by a lawyer.

This guide explains the systematics and does not replace advice in an individual case. Which Beleihungswert applies to your property, and which terms follow from it, can only be assessed against the actual documents and the individual bank. If you would like to clarify that for your project, send us a financing enquiry.