BUYING IN LUXEMBOURG : Obtaining a property loan
The application file
For most future house or apartment owners, it is necessary to take out a property loan contact with a banking or financial institution in order to obtain the required funds to finance their project. This is a step that requires an understanding of the process involved in an application for credit, as well as being properly prepared, as a responsible and well-informed individual.
Before seeking to purchase a property, it is necessary to have a good credit profile of a duration of between 2 to 5 years. A background of regular payments of monthly bills, the absence of overdrafts on one’s account and consumer credits paid (if possible) are some examples of good starting points. You also need to have found the property of your dreams and to have made an offer to the vendor, subject to obtaining bank credit.
Preparation of the application fie with the bank
In order to submit a loan application, the prospective purchaser must provide information concerning the property. The banker must receive reassurance about their capacity to make the personal contribution, and to reimburse the bank according to certain well-defined criteria. In the light of their source of income, professional and financial situation, the banker will analyse the file. They will ensure that individuals are capable of continuing to provide for themselves, of making the repayments and limiting risks of subsequent expenditures for the maintenance or renovation of the building, for example. The following typically need to be borne in mind:
The principle of the personal contribution
The applicant for credit for a property purchase must be able to provide favourable response to regulatory provisions adopted by the banks. The contribution of personal funds, the amount of which may vary between 20% and 30% of the proposed price, depending on the financial establishment. This sum serves to cover the compulsory costs of the application, agency fees and those of the notary, which generally account for approximately 15% of the overall proposed outlay. Naturally, it is possible to combine several sources of revenue in order to obtain this amount.
The impact of professional circumstances
Banks are looking for financial stability in candidates in the light of the property loan. A permanent employment contract or seniority with an employer are seen as convincing, favourable and reliable arguments. For freelances and the liberal professions, it is necessary to submit two or three years of balance sheets. Each application will then be analysed, case by case, but it is an advantage to be a couple living together and to have been in employment for a number of years.
Banks seek reassurance that their future clients will be able to live and support themselves alongside the loan to be repaid, on the one hand, and on the other hand, they seek to limit the risk of loaning too much or risky loans.
The first point consists of limiting the level of indebtedness of future property purchasers. The rule is that the monthly cost of the property loan should be restricted to 33% of net income. The standard practice is thus to ascertain whether the client will be amble to continue to meet their family expenditure requirements.
Le second point relates to having a credit profile with banks, not having overdrafts during the preceding year and, if possible, paying off open-ended credit or consumer loans.
By preparing an appropriate application file, it will become easier to obtain credit and to negotiate the arrangements for the loan.
Advice, and composition of the application file
Credibility is obtained through the proper level of preparation. It is essential to submit an application file that is complete, with all the required documents. This means that all procedures involving examination of the application file can be completed more rapidly.
The documentation generally required is the following:
- - A copy of both sides of the Identity Card
- - The last 3 payslips
- - The latest statement of earnings
- - The last 3 bank account statements
- - Sale agreement
- - Evidence of financial contribution
- Attestation of entitlement to accommodation (Luxembourg Ministère du Logement [Ministry of Housing])
The more realistic the proposed purchase, the more likely it is that the client will be accepted. It is desirable to reduce the duration of the loan, by increasing the level of personal contribution or by deferring renovation work, if appropriate. Finally, note that the average duration of the period of property credit in Luxembourg is 20 yeas for those under 35, and 10 years for those who are older.
Finally, in order to negotiate a loan under favourable conditions, it is normal practice to present oneself to a number of establishments, to compare banks and options and rates available, and to take advantage of competition.
Emilie DI VINCENZO