Equity and financing of luxury real estate
"Equity and financing of luxury estates, castles, palaces and historic real estate!“
In this section the property brokers for luxury real estate, castles and unique properties at ASP Global Luxury Properties & Castles will give you a fundamental insight into the definition of luxury - and collector objects, the way in which banks approach the subject of luxury- and collector real estate, and the financing options available.
Different rules apply for luxury - and collector properties than for traditional mortgage financing.
The financing of luxury real estate differs significantly from that of conventional residential buildings. The term luxury real estate is defined differently depending on the financing institution. Generally speaking the following characteristics indicate a luxury property:
- Excellent panoramic location, upscale residential district.
- Spacious, inviting floor plan (in the case of apartments living space from 250m², for houses from 300m²).
- Historic properties in good or excellent condition (castle, city palace, mansion)
- Elaborate, superior architecture.
- Extensive grounds, elaborately crafted and landscaped gardens.
- Expensive extensions such as swimming pools or spa facilities.
- Special, expensive materials (resulting in a high cubic meter price).
- Region with high social prestige.
- Lake - or river bank
Of course, the property location and the region are the most important criteria when assessing an exclusive property.
Some banks have created an additional category for collector properties for which specific principles may apply to funding. Collector's items are unique residential properties that are unusual and may have the following characteristics:
- Property that previously had a different use (e.g. farmhouse expanded to an apartment building, industrial building converted into lofts).
- Buildings of historical value and/or of historical preservation.
- Factors which may make the property difficult to sell (e.g. on agriculture plot).
- Striking disproportion between land and property value.
- Very expensive and exclusive object in a location with more affordable housing (low marketability).
- Highly personalised extensions which may not automatically add value for prospective buyers (such as own home theatre, whole house wired stereo system, large bathing landscape with an oversized swimming pool, more than four garage spaces for a single house).
In many cases, the market value of collector objects are financially incomprehensible. So, for example the complex renovation of a farmhouse often costs much more than a completely new building. For the credit-financing institution, the market value assessment is often discretionary, as traditional market value assessments (for example, with comparative or hedonic models)
cannot provide correct results.
How does the financing of luxury or connoisseur property differ from traditional financing?
Luxury and collector properties are pledged as assets less often. The owner must contribute between 35 and 40 per cent of the collateral value in the form of equity in order to finance them, instead of 20 percent for “normal” properties. The first mortgage will only cover about 50 instead of 65 percent of the object value, the second mortgage often only 10 to 15 percent. In most cases the second mortgage must be amortized up to retirement, often even a part of the first mortgage. Thus the proportion of debt financing is reduced to 50 percent of the value of the object or even less.
Commercial mortgage viability:
Owners of exclusive real estate often have high income and sufficient equity. High-end mortgages are chosen due to tax - considerations. This means that even in the case of a good income and significant assets the affordability calculation can equate to more than the 33 percent of gross salary. Depending on income levels, when it comes to financing luxury objects it is not uncommon for housing costs to make up a 40 to 45 percent share of total income.
When determining mortgage lending, credit institutions often take the overall customer relationship into account. Other business areas maintained by the customer with the credit institution (such as investments, insurance, business relationships, etc.), are also taken into consideration. The customer must assume that he will be judged by the credit institution overall and should be willing to barter for favourable mortgage conditions.
Owners of luxury objects are usually rated as AAA customers and enjoy good credit conditions thanks to this credit rating, as well as the often high mortgage amount. Depending on the situation (loan amount, income from other customer relationships) the customer can expect a preferential rate to the current refinancing rate (cash or capital market rates) with a customer margin of 0.75 to 1%. By comparison the traditional financing margins are around 1.2 to 1.5 percent higher.
A tip from ASPI AG: This is how you finance your luxury house / castle / palace
Luxury real estate financing and collector objects must be viewed very differently. Here are some tips for the successful financing of luxury or collector objects:
- Check with your bank whether your property qualifies for normal financing or will be viewed as a luxury or collector property.
- Compare the different conditions and credit criteria. Some banks are not interested in financing luxury or collector properties and therefore propose unattractive conditions.
- Seek advice from an independent body. There are professional mortgage and credit consultants who, for a fee, can calculate the most suitable financing for you with the best interest rates. You save time and the money you save in the form of favourable interest rates should mean that your fee is effectively reimbursed several times over. When it comes to luxury objects in particular, the savings potential is considerable.
- Consider the fact that your overall relationship with the bank is of importance. However, avoid golden shackles and be sure not to "sell your soul" to the lending institution.
Why will the real estate agent for luxury properties and castles ask about your available equity?
Upon requesting information concerning the purchase of one of our castles, or other luxury real estate you will usually receive a basic report about the requested property with all sorts of information about the castle, or luxury real estate. If you are still interested in the property and would like to visit, see plans, the interior, land register extracts and other confidential documents, then the respective expert broker luxury homes and castles will (amongst other things) enquire about the amount of capital you have available and for new customers proof will be required.
The castle, luxury villa or penthouse high above the city that are for sale will most likely still be inhabited by the owners during the period that they are on the market. The ASP broker for luxury homes and castles was hired by the owners to offer these high-quality objects only to serious, respectable prospective buyers and to only offer viewings and begin negotiations with such buyers. Documents detailing evidence of capital / financing evidence / etc. are not disclosed to the owner! But the owner receives confirmation that there is sufficient equity for the purchase, or that given the available equity financing should not pose a problem.
Trust and openness in dealing with each other is very important. The real estate agent for luxury estates and castles at ASP global luxury properties is very keen to sell you your dream property. Our specialist brokers will offer you their competent and expert support in selecting the right property, compiling all documents, organising financing, drawing up contracts, and aid you up to the date of the acquisition of your luxury real estate. The more information you can provide us with, the sooner you can obtain your dream property.