Real estate financing
Only mortgages that meet certain requirements may be used as cover for Mortgage Pfandbriefe. Land charges and foreign security interests that offer comparable security rank equal with mortgages.
Property charges may encumber landed property or equivalent titles to land in Germany, in the Member States of the European Union or another Contracting State to the Agreement on the European Economic Area (EEA), in Switzerland, in the USA, Canada, Japan, Australia, New Zealand and Singapore. Both commercial and residential properties may be lent against. Also eligible as cover for Pfandbriefe are assets which other credit institutions hold for the Pfandbrief Bank on a fiduciary basis, provided the Pfandbrief Bank is entitled to the separation of these assets from the trustee’s assets in the event of the latter’s insolvency.
For the Pfandbrief Banks’ cross-border business that is eligible as cover, moreover, the share of the loans in respect of which the preferential right in insolvency is not ensured must not exceed 10 % of the mortgage cover assets. The EU Member States are not included in the Pfandbrief Bank’s cross-border business in this context, as the preferential right in the case of insolvency is ensured by statutory provisions at EU level.
Mortgage lending value vs. market value
One of the central pillars of the safety of the Mortgage Pfandbrief is that property financings may be included in cover only up to the mortgage lending limit of 60 % of the mortgage lending value (MLV). The MLV reflects only the long-term, sustainable aspects of a property, meaning that speculative aspects are disregarded. The aim here is that the MLV, unlike the market value, shows as little in the way of fluctuation as possible. Yet the mortgage lending limit of 60 % of the MLV does not mean that a loan, to be eligible as cover, may only be equivalent to this 60 % limit. Only the part of the loan that serves as cover may not exceed this limit. This can be achieved by dividing the loan into two parts – one up to the 60% limit and the other above it. However, this is not necessary in practice as an ideal division is possible and is applied in most cases. Finally, the properties lent against must be insured against the risks relevant to the location and type of property concerned.
The way in which the MLV is to be determined, and the requirements in respect of the valuer’s qualifications and the valuer’s independence vis-à-vis the Pfandbrief Bank are regulated in detail by the Pfandbrief Act and the Regulation on the Determination of the Mortgage Lending Value (BelWertV).