Hi everyone,
Is this situation the norm now?
A bank has refused a financing application based on its valuation of the property and the renovation project. The reasoning was roughly as follows:
- Purchase price of the existing house: €460,000
- Renovation budget: €700,000
- Total project cost: €1,160,000
- The bank valued the existing property at only €312,700 because a part of it would be demolished during the renovation (roof and ground floor back facade, both in order to allow for extension). This despite the official evaluation by an expertese on which the purchase price is based.
- It considered the renovation costs too high and estimated the works at €646,700 instead of €700,000. (I also wish it would be cheaper but we selected the best offers we got)
- It then applied an 80% valuation factor to the renovation works as per CSSF regulations, followed by further deductions, resulting in a total assessed property value of approximately €824,000.
- It then applied the 90% financing limit on the assessed value resilting in the maximim loan of approximately €742,000.
In practice, this means the bank would finance only around 64% of the total project cost, because despite their calculations the project still costs €1.16 million.
The conclusion the bank gave us was that it is not our financial capacity that's the problem, but rather the nature of the project itself, and unless we can cover the gap ourselves, they wont approve our project.
I'm trying to understand whether this is standard practice in Luxembourg at the moment. Are major renovations purpousefully discouraged by the policies?
Thanks in advance.
For more info, we did talk to 3 banks, one refused to finance the renovation completely untill we buy the house and have a building permission, other openly told us that they cant give a competitive offer.
