Posted on 18 November 2020

The Benefits of Investing in Rental Properties

new measures concerning the conditions for granting loans to finance the acquisition of real estate for residential use located on Luxembourg territory (borrower-based measures).
The primary objective of setting new standards is to limit the emergence of excessive household indebtedness, which remains a factor in reducing consumption and the savings needed for robust economic growth. It will also help to curb speculation.
The LTV (Loan-To-Value) report, which the recommendation invites the CSSF to put in place, describes the ratio between the sum of all loans or loan tranches granted to borrowers of residential property and the value of the property at the time the loan is arranged. This LTV ratio is differentiated according to several socio-economic criteria.
The general principle is to set a maximum limit of 80% for the LTV ratio for all loans, including those for rental investment (buy to let). However, the CdRS recommends that the CSSF allow lending institutions to derogate from this principle by setting specific limits for first-time buyers as well as for other purchasers of a principal residence.
Indeed, the measure taken by the CdRS is in no way intended to deprive young households of the possibility of acquiring a principal residence. Lending institutions may continue to grant loans to first-time buyers covering up to the full value of the property, without, however, going beyond an LTV ratio of 100%, where this does not compromise their own solvency or that of the borrowers.
A maximum limit of 90% LTV is introduced for other purchasers of a principal residence, i.e. those who already own their principal residence and wish to acquire a new one. This limit can be increased by the lending institution under certain conditions to 100%.

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