On Nov. 18, LUX GVT recommended CSSF impose new LTV ratios.
LUX Government announced that systemic risk committee (CdRS) recommended that the CSSF activate certain legal measures provided for the granting of real estate loans.
After an in-depth analysis of recent developments in the residential real estate market in Luxembourg, CdRS made recommendation to CSSF, at its meeting of Nov. 9, 2020.
CdRS made recommendation to the CSSF to activate the law of Dec. 4, 2019 to mitigate the accumulation of vulnerabilities linked to residential mortgage loans.
Advised new borrower based measures to limit excessive household indebtedness.
LTV Ratio
LTV (loan-to-value) ratio the recommendation invites CSSF to put in place, describes relationship between sum of all loans or loan tranches granted to residential real estate borrowers and the value of the property at the time of the loan arrangement.
This LTV ratio is differentiated according to several socio-economic criteria.
General principle consists of setting a maximum limit of 80% for LTV ratio for any loan.
However, recommended CSSF allow lending institutions to derogate from principle by setting specific limits for first-time buyers and for other buyers of a main residence.
Lending institutions may continue to grant loans to first-time buyers covering up to the entire value of the property, without, however, going beyond an LTV ratio of 100%.
When this does not compromise or their own creditworthiness or that of borrowers.
A maximum limit of 90% of LTV is established for other buyers of a main residence, namely those who already own their main residence and wish to acquire a new one.
This limit may be increased by lending institution under certain conditions to 100%.
This is in line with measures in 2021 draft budget to thwart real estate speculation.
To prevent the avoidance of limits by resorting to lenders in neighboring countries, recommended that CSSF ask NCAs of other MSs to recognize the limits provided for.
Monitoring Compliance
CdRS will continue to monitor developments in the residential real estate market in Luxembourg and compliance with best credit granting practices by lending institutions.
Will pay particular attention to practices re maximum duration of residential mortgage loans and will assess need to recommend additional measures provided for by law.
Nov. 18, 2020 LUX PRL Update
On Nov. 18, 2020, LUX PRL discussed LTV recommendation with Minister of Finance.
Finance and Budget Committee, had practical questions arise concerning, e.g. loans which cover the cost of a renovation or the acquisition of a property in border region.
Some also asked how to avoid abuse, deputies will organize an interview with CSSF officials to find out the details of the measures that will be communicated to the banks.
The three proposed new thresholds for home loans should apply from Jan. 1, 2021.
Laying down conditions for granting loans for residential property in Luxembourg.
Following CdRS recommendation, set 80% LTV ratio for loans, including buy-to-let.
Subject to derogations which allow an LTV ratio of 100% for first time buyers.
Or 90% LTV ratio for existing homeowners wishing to acquire a new main residence.
In addition, it is the responsibility of lending institutions to ensure that loan criteria they apply remain prudent, not compromising their own solvency or that of borrowers.
Applies to contracts concluded from Jan. 21, 2021, with exemption for contracts signed up to Feb. 28, 2021, on basis of firm offers made to borrowers before Dec. 7, 2020.
Dec. 21, 2020 Updates
On Dec. 21, 2020, LUX CSSF published technical FAQ on Regulation CSSF No 20-08 on borrower based measures for residential real estate credit, (available in English only).
Includes questions on bridge loans, limits, and calculation of the portfolio allowance.
Determining value in case of significant renovations or works and properties with constructions to be completed, to whom the LTV limit apply, definition first time buyer.
Situation in cases where a borrower moves out of his primary residence to rent it out.
Followed Dec. 17, 2020, LUX CAA issued circular letter 20/20 drawing attention of insurers who undertake occasional credit granting activities to the CSSF regulation.
Should prepare for a possible collection of data by CSSF on compliance with the limits.
Followed Dec. 18, 2020, LUX PRL finance committee discussed measure with CSSF.
The measures were characterized as not being radical, but a signal to the market.
Apr. 2021 Technical FAQ Update
On Apr. 7, 2021, LUX CSSF published updated version of technical FAQ on Regulation CSSF No 20-08 on borrower based measures for residential real estate credit.
CSSF regulation No 20-08 introduced loan-to-value (LTV) limits requiring borrowers to satisfy specific funds requirements to qualify for mortgage loans real estate purchases.
Includes questions on types of collateral included in the V-value of property purchased.
Also on treatment of bridge loans, calculation of portfolio allowance, and determination of value in case of significant renovations / works and properties with constructions.
LTV limit applied to private borrowers and does not apply to the financing of residential real estate for commercial purposes; also applies in the case of joint applications.
Aug. 2023 Technical FAQ Update
On Aug. 9, 2023, LUX CSSF issued updated version of technical FAQ on Regulation CSSF No 20-08 on borrower-based measures for residential real estate credit.
FAQ focused on type of collateral for the V in LTV, treatment of bridge loans, limits and portfolio allowance calculation, determination of value re renovations, fist-time buyers.
May 2024 Temporary Adaptation
On May 22, 2024, LUX CSSF informed of publication in the gazette of Regulation CSSF No 24-04 of May 21, 2024 on temporary adjustments to Regulation CSSF No 20-08.
Re the conditions for granting mortgage loans for residential property located in LUX.
Addition of a paragraph in article 2 re temporary derogation from the 1st paragraph about the category of loans relating to real estate intended for rental (buy-to-let).
Lending institutions may grant individual loans with an LTV ratio of up to 95 %, that is to say respecting an LTV ratio of between 80% and 95% (80% < LTV ratio ≤ 95%).
Provided that the aggregate amount of credits benefiting from this exemption represents at most 10% of the amount annual aggregate of this category of credits.
Regulation comes into force on the day of its publication, on May 22, 2024 for credit contracts signed from that date; reg applies until Dec. 31, 2024 unless it's extended.
May 24, 2024 Technical FAQ Updated
On May 24, 2024, LUX CSSF issued technical questions/answers relating to Regulation CSSF 20-08 re measures relating to the borrower for residential real estate loans.
The temporary updates to FAQ are shown in the document as underlined and in red.
