Lending Limits: Definition, Typical Ratios and Effects

How is the lending limit created?

The starting point is the conservative Mortgage lending value. The lenders applies its institution-specific limit to it – depending on refinancing, risk policy and asset class. The most important legal mark is the 60 % Pfandbrief limitOnly the part of the loan within 60 % of mortgage lending value may be used to cover mortgage bonds – therefore capital up to this limit is the most favorable. Insurers and pension funds follow similar investment limits.

Typical limits by type of investor

• Pfandbrief banks: first tier up to 60 % mortgage lending value particularly favorable; above that with surcharges.
• Commercial banks/savings banks: depending on the property and credit rating up to approximately 80 %.
• Debt funds/alternative lenders: Whole loans up to approximately 85–90 %, priced as a mixed margin.
• With Mezzanine: Overall structures beyond that – each level is risk-adequately more expensive.

What the lending limit means for your structure

The gap between the purchase price or project costs and the lending limit of the first-ranking bank defines the need for Equity and subordinated capital – it is the birthplace of almost everyone Funding gap. Professional structuring means consciously building this gap: exploiting the cheapest capital up to the respective border, complementing it in a targeted manner. We combine lenders with different lending limit – from Senior loans over the Whole loans until the Mezzanine capital.