Mortgage lending value — the figure that decides your rate
It is not the purchase price that determines your terms but the value the bank credits the property with on a lasting basis. Two buyers with the same price and equity can receive different rates. The loan to value ratio is the number that decides which banks are even in play for this case.
What is the mortgage lending value — and why is it lower than the purchase price?
The mortgage lending value is the value the bank credits the property with on a lasting basis — not the price you pay today. It deliberately screens out whatever the market is currently overheating, and therefore normally sits below the purchase price. This is not distrust of your purchase but a legally intended prudence principle: the bank must know the loan is still secured if the market turns. In practice this value decides everything that follows, because the loan-to-value ratio — loan measured against the mortgage lending value — determines your interest rate. Two buyers with an identical purchase price and identical equity can receive different rates because their properties were valued differently. For non-residents the point matters twice over, since a lower ratio is required here in any case.
How do you finance land without a building on it?
Financing bare land is not the same as a mortgage — and for banks it is the less comfortable option. The reason lies in the security: undeveloped land is harder to realise than a house and produces no income. Banks therefore usually require more equity for a land loan and grant a lower loan-to-value ratio than for a completed property. What matters most is whether it is building land with secured planning permission or merely land expected to become developable — two entirely different cases.
Bare land is the clearest case of the rule this page describes: the harder a security is to realise, the further the lending value falls below the price paid. The gap does not disappear — it turns into equity you have to bring.
What the mortgage lending value is
The mortgage lending value is the value a bank credits the property with on a lasting basis — detached from the current market situation. It deliberately screens out whatever is currently overheating, and therefore normally sits below the purchase price.
This is not doubt about your purchase. It is a prudence principle: the bank must know its loan is still secured if the market turns and the property had to be realised some years from now. A value that priced in a boom would be useless for that.
It differs from the market value in exactly this respect: market value reflects what is achievable today. Mortgage lending value reflects what remains achievable over time.
Why this decides your interest rate
The metric that follows from it is the loan-to-value ratio: the loan measured against the mortgage lending value. It is the single most important factor for your rate — more important than most buyers assume.
Banks work in brackets. Fall below a given threshold and you move into a cheaper bracket; sit just above it and you pay noticeably more. That explains an observation many buyers find puzzling: two people with the same purchase price and the same equity receive different offers — because their properties were valued differently.
In practice this means it can be worth deploying somewhat more equity to drop below a threshold. And sometimes it is better to keep the money because the next bracket is out of reach anyway. That calculation belongs before the application.
What this means if you live abroad
With a residence abroad, banks require a lower loan-to-value ratio than for domestic clients in any case. The mortgage lending value therefore decides twice over: it sets your rate bracket — and it determines whether the financing comes about in the amount you want at all.
Choosing the property is therefore not purely a matter of taste when you live abroad. Properties a bank finds hard to value — unusual layout, weak location, unclear lettability — worsen your ratio on top of the discount you already carry. A property that values well is worth more to you than to a domestic buyer.
Frequently asked questions
Why is the mortgage lending value lower than the purchase price?
What is the difference from market value?
Can I influence the mortgage lending value?
Why do I get a different rate from an acquaintance with the same purchase price?
Does a different standard apply if I live abroad?
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Before you make an offer, I tell you how a bank is likely to value the property you have in mind.