Equity for real estate financing
How much down payment do I need for my real estate financing in Luxembourg? And how to calculate the acquisition fees?
When a question implies many variables, the answer is often “it depends”. Calculating the minimum down payment or the optimum down payment for a real estate acquisition are no exceptions to that.
Down payment in Luxemburg
In Luxembourg, the costs related to the acquisition must be covered by the real estate property buyers and from their own savings. Because it is not part of the property value, the banks are not financing these acquisition costs. Depending on the buyer profiles, they can benefit from the Bellëgen Akt which can significantly reduce the acquisition fees compared to Belgium, France and Germany.
Acquisition costs and applicable fees
Acquisition costs contains mainly notary fees for the real estate purchase deed, mortgage deed, the applicable registration rights, or stamp duty (Inscription tax duty), potentially life insurance premiums, and ultimately bank fees.
Down payment in Luxemburg
In Luxembourg, the costs related to the acquisition must be covered by the real estate property buyers and from their own savings. Because it is not part of the property value, the banks are not financing these acquisition costs. Depending on the buyer profiles, they can benefit from the Bellëgen Akt which can significantly reduce the acquisition fees compared to Belgium, France and Germany.
Acquisition costs and applicable fees
Acquisition costs contains mainly notary fees for the real estate purchase deed, mortgage deed, the applicable registration rights, or stamp duty (Inscription tax duty), potentially life insurance premiums, and ultimately bank fees.
Notary fees include two deeds (due on notary deed):
« Acte de Vente » (Purchase deed)
This first deed transfers the asset ownership from the selling party to the buying party.
« Acte hypothécaire » (Mortgage inscription)
Giving a guarantee to the bank, If the owner is defaulting on due payments, the bank can legally force the sale of this asset to recover its due amount.
The applicable notary fees are calculated by the appointed notary, so “it depends” on the purchase price and on the loan amount. Thus, it is generally estimated between 5.000 EUR and 10.000 EUR.
Registration Rights fees (Droits d’Enregistrement)
Existing property
The notary must account 7% registration fee on the purchase price for existing properties.
New construction (VEFA)
For new constructions, the registration fee is based on the land value (“Quote-part terrain”). If the construction has already started, the calculation must integrate the constructed value of the building at the time of the notary deed. (VEFA & EXIST Article)
Tax credit - Bellëgen Akt
Luxembourg state authorities have increased the tax allowance reducing the due registration rights fees for any deed signed on or after 7th of March 2023. Till then, this tax credit, Bellëgen Akt, of 20.000 EUR was applicable for the first acquisition of a main personal residence. This tax credit is now raised to 30.000 EUR per property buyer, and it remains subject to conditions of effective occupancy as main residence.
Check your existing Bellëgen Akt tax credit on MyGuichet.lu.
Buyer’s obligations
The main buyer’s obligations are to occupy effectively and personally the property acquired within a timeframe of 2 years from the date of the notarial deed of acquisition, or within 4 years if the acquisition is a building plot or a building under construction and then with an effective occupation of at least 2 years.
Minimum registration rights fees
If the total of due registration rights fees is lower than the available tax credit, the minimum due amount is 100 EUR.
In case of unused tax credit after the first acquisition, the remaining amount is available for the next main residence acquisition in Luxembourg.
Tax credit repayment
The buyer must repay the tax credit in full plus applicable legal interests if he or she fully or partially rents out the building, or transfers the property, or changes his or her legal address before the completion of the 2 years of occupation period.
For complimentary details, please refer to us and you can read more from these following official sources :
Mortgage Life Insurance (Assurance Solde Restant Dû - ASRD)
The mortgage life insurance, also known as outstanding balance insurance, is a type of insurance that pays out if you die before you finish paying your mortgage. The policy can be extended to partial or total disability, which will increase the premium fees.
The main purpose of such insurance is to protect the household and beneficiaries from a forced sale resulting from too high instalments to cover after the death or the total disability of one of the covered persons.
Bank requirements
When negotiating a new loan contract, banks will specify their minimum mortgage life insurance conditions depending on their internal loan risk assessments and policies, thus it varies from one bank to another.
In some cases, banks will not require any mortgage life insurance, e.g. either when the borrowers have other real estate and financial assets, or when the loan amount is marginal compared to the property value, or if each borrower can support the existing installment on its own.
Alternatively, existing life insurance policies can be used as collateral, subject insurance policy terms and conditions, and bank approval.
To protect the family members and beneficiaries, it is important to assess if the bank requirements are in line with your wished coverage in case of such unexpected events.
Calculation
The premiums are calculated based on borrower’s age, loan specifics (amount, interest and duration) and may vary with the chosen coverage factors as the percentage of the total loan amount (0% till 100%) and the duration, e.g. a coverage of 20 years over a 30 years loan contract.
Fees and tax deductibility
The two main options to pay the insurance premiums are one-shot and periodically.
The one-shot premium is slightly more cost-effective and benefits from a specific tax deductibility as described below:
Tax deduction based on borrower’s age |
Up to 30 y. o. |
Increment from 31 to 49 y.o. |
Maximum 50 years and older |
|---|---|---|---|
| Without Children |
6.000 EUR |
480 EUR |
15.600 EUR |
| Per Child |
+1.200 EUR |
+96 EUR |
+3.120 EUR |
The deductibility is applicable in the year of the insurance contract premium payment.
The second option is the periodical payment, either yearly or monthly. As the premium fee is a part of all deductible insurances, the total deducted amount can be lower than the one-shot option. The main benefit is to streamline the payment over time, and to limit the cash out at the time of the property acquisition.
At the time of insurance subscription, the borrowers can combine both options, thus benefit from better tax deductibility and in line with the household finances.
Minimum down payment calculation
Example for an existing property and for an off-plan project (VEFA)
Mrs. A and Mr. B jointly purchase an existing apartment with a purchase price of 750.000 EUR as their main residence.
Acquisition budget calculation for an existing property
| Acquisition price |
750.000 EUR |
| NotarkostenNotary fees (estimated) |
+ 8.000 EUR |
| GrunderwerbssteuerRegistration rights fee (7%) |
+ 52.500 EUR |
| GesamtkostenTotal acquisition budget |
810.500 EUR |
If Mrs. A & Mr. B are both qualifying as first-time buyers (LINK), they can benefit from the full “Bellëgen Akt” – Crédit d’impôt sur Acte Notarié, thus their Registration Rights fee will be reduced to the minimum applicable amount of 100 EUR.
| Acquisition price |
|
750.000 EUR |
| NotarkostenNotary fees (estimated) |
|
+ 8.000 EUR |
| GrunderwerbsteuerRegistration rights fee (7%) |
+ 52.500 EUR |
|
| - Tax credit (30k EUR / person) |
- 60.000 EUR |
|
| Applicable registration rights |
|
+ 100 EUR |
| Total acquisition budget |
|
758.100 EUR |
| - Maximum loan amount (100%) |
|
- 750.000 EUR |
| Minimum down payment |
|
8.100 EUR |
Thus, the minimum down payment for their home financing at 100% would be 8.100 EUR.
If Mrs. A or Mr. B are not first buyers, they can finance a maximum of 90%.
| Acquisition price |
|
750.000 EUR |
| NotarkostenNotary fees (estimated) |
|
+ 8.000 EUR |
| GrunderwerbsteuerRegistration rights fee (7%) |
|
+ 52.500 EUR |
| Total acquisition budget |
|
810.500 EUR |
| - Maximum loan amount (90%) |
|
- 675.000 EUR |
| Minimum down payment |
|
135.500 EUR |
The bank can offer a mortgage loan up to 90% of the asset value and the minimum down payment would be 135.500 EUR, minus any remaining tax credit.
If the property is purchased as a rental investment, a Loan-To-Value (link) of maximum 80% must be achieved regardless of whether the buyers are first-time buyers or not. In this case, the buyers cannot benefit from the Bellëgen Akt.
| Acquisition price |
|
750.000 EUR |
| Notary fees (estimated) |
|
+ 8.000 EUR |
| Registration rights fee (7%) |
|
+ 52.500 EUR |
| Total acquisition budget |
|
810.500 EUR |
| - Maximum loan amount (80%) |
|
- 600.000 EUR |
| Minimum down payment |
|
210.500 EUR |
Thus, the acquisition fees plus 20% on the purchase price are required as down payment of 210.500 EUR.
Renovations
When the home financing application involves an amount dedicated to renovations, banks require a higher down payment as they finance up to 80% of the renovations budget.
Property energy performance
Based on the energy performance certificate of your real estate project, banks can negatively affect its valuation. It can potentially require an extra down payment to cover the difference between the purchase price and its lower valuation. Furthermore, banks could condition the loan approval if it includes making energy-efficient renovations.
Low energy efficiency, meaning that the property has a least efficient or poor energy performance, can also have a negative impact on the interest rate.
How can my down payment improve my interest rates?
The interest rates offered by the banks are the result of the risk assessment of each mortgage loan application. The two main factors for this risk assessment are on the one hand the invested down payment determining the loan-to-value ratio, or LTV, and on the other hand, the ratio between the household incomes and financial obligations.
The down payment directly impacts the LTV which quantifies the value of the guarantee for the bank.
Based on the monthly income and monthly obligations, the bank evaluates how comfortably you can repay your loan installment each month.
fidem is at your disposal to advise you on how to obtain the best home financing loan conditions based on your situation and your expectations.
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