How the bank determines your property's value.

The bank does not use the purchase price

When buying a property, three different values meet that are often confused:

• Purchase price: what buyer and seller agree on. It can sit above the actual value because of competition, time pressure or emotion.
• Market value: the price achievable on the market at the valuation date. It is defined in the German building code and is the basis of any sound valuation.
• Mortgage lending value: the value the bank assigns to the property as collateral, set deliberately on the cautious side.

What matters to the bank is not what you pay, but what it could recover over the long term if it ever had to. That is exactly why it works with the mortgage lending value and not the purchase price.

The lending value is the cautious long-term value

The mortgage lending value is defined by law and describes the value a property is expected to hold reliably over the entire term of the loan. The bank leaves short-term market exaggerations out of the picture. As a rule, the lending value sits around 10 to 20 percent below the market value.

The ratio of loan to lending value gives the loan-to-value ratio. It determines your terms: up to a ratio of around 60 percent of the lending value a loan is considered particularly safe, above that banks step up the interest rate. Plenty of equity lowers the ratio and with it the rate. How much equity makes sense is covered in our guide Equity.

An example of how the loan-to-value ratio works

A simplified example shows how it fits together. Suppose the mortgage lending value equals the purchase price. If you contribute a fifth of the purchase price as equity and finance the rest, the loan-to-value ratio sits at around 80 percent. That is a common, comfortably financeable figure.

If instead you only cover the purchase costs from equity and finance the full purchase price, the ratio rises above 90 percent. The bank then usually charges a noticeable interest premium. And if the lending value falls below the purchase price, everything shifts upward: the same loan produces a higher ratio because it relates to a smaller value. This is the lever many people underestimate.

Comparison, asset and income approaches

Which approach the bank uses depends on the property type, not on your choice. There are three recognised methods:

• Comparison approach: for condominiums and standardised properties. It is based on prices actually achieved for comparable properties nearby.
• Asset approach: for owner-occupied houses. It is based on the land value, derived from the standard land value, plus the construction value of the building less depreciation.
• Income approach: for let and commercial properties. It is based on the rental income that can be sustained. For investors this is the decisive method.

For let properties, then, the fit-out matters less than the rent that can be achieved on a lasting basis. More on this in our guide Commercial Property Financing.

These factors move the value the most

Regardless of the approach, some features shape a property's value in particular:

• location, both the region and the specific neighbourhood, transport links and surroundings
• year of construction and structural condition
• living space and plot size
• quality of the fit-out and the floor plan
• energy standard: heating, insulation and the energy certificate
• modernisations carried out in recent years

The energy standard has gained considerable weight in recent years. Properties with a high need for renovation are valued more cautiously, because future costs weigh on the value. Anyone who can evidence modernisations gives the bank a reason to set the value higher.

Valuation in the Frankfurt Rhine-Main region

A property's value is always local. The basis for the land value is the standard land value, which the local valuation committees publish regularly. In Hesse you can look it up via the official BORIS-Hessen portal.

Between Frankfurt, the Hochtaunus district and the edges of the Rhine-Main region the differences are large, often from one neighbourhood to the next. For the bank this means two structurally identical houses can be valued quite differently depending on location. In sought-after locations such as Frankfurt or along the Taunus, the high land value carries the valuation, while in more rural parts the condition of the building counts for more. We know the regional differences and which bank assesses which locations in which way.

The documents the bank needs

For the valuation, the bank relies on documents you provide as the buyer. Assembled in full, these are usually:

• land register extract
• cadastral map or site plan
• building plans and floor plans
• living space calculation
• energy certificate
• current photos, inside and outside
• for condominiums: declaration of division, minutes of the owners' meetings, service charge statement
• for let properties: a current rent roll

For standard properties the bank often carries out a desk valuation based on these documents and its own market data. For larger loans or unusual properties a site visit or an external appraisal follows. Complete, clean documents speed up the process and avoid the cautious discounts a bank otherwise applies out of uncertainty.

How to get your property ready for valuation

You cannot set the valuation, but you can give it a solid basis. These points help:

• gather documents early and in full, rather than submitting them one by one
• evidence modernisations from recent years with invoices, especially heating, windows, insulation and the bathroom
• keep the energy certificate to hand and document energy improvements
• provide bright, meaningful photos of the interior and exterior
• for condominiums, check the minutes of the owners' meetings for approved renovations
• name obvious defects rather than concealing them, because the bank will find them anyway

The clearer the picture the bank receives, the fewer cautious safety discounts it applies.

When the value is below the purchase price

If the lending value sits below the purchase price, a gap opens that you have to close, because the bank bases its loan on the lending value. Three routes help:

• contribute more equity to lower the loan-to-value ratio
• support the valuation with complete documents and evidence of modernisations
• check another bank, because institutions value the same property differently

This is exactly where our work begins. As an independent broker under Section 34i GewO, we compare several banks for you and see which one values the property realistically. That is no guarantee of a higher value, but it improves the chance of finding a bank whose valuation fits your plans. More on the Property Financing page.