Financing your project

Step 1

You sign a deed of sale of property off-plan which provides that the total price is paid in instalments, based on the progress of works.

This type of contract is governed by the laws of Luxembourg.

Step 2

The promoter is required to offer you a completion guarantee, which will be annexed to the notarial deed of sale and registered with him.

Through this guarantee, a bank undertakes to pay the sums necessary for the full completion of the construction in accordance with the terms of the contact, should the seller not fulfil his completion obligation.

The bank may replace this completion guarantee by a repayment guarantee. In that case, it undertakes to repay the buyer the instalments paid by the latter.

Step 3

Besides the deed of sale, you also sign the co-ownership deed, which specifies the common areas.

The Co-ownership rules define the rules for joint living conditions among the co-owners.

When you receive your new accommodation, a delivery report mentioning any shortcomings and defects is drawn up. By countersigning this report, the builder undertakes to carry out the necessary works at the earliest.

The ten-year guarantee given by the builder covers the building against latent defects for a period of 10 years as from the delivery of the apartment.

The opinion of a building expert can also be useful to estimate the value of the building, detect latent defects (cracks, humidity) and estimate the costs of repairs to be carried out.

When you have found a suitable house or apartment, you can sign a pre-contract.

If the buyer finances the purchase of the property through a loan, it is usual practice to add to the pre-contract a suspensive clause providing for the outright cancellation of the pre-contract if the necessary funds are not obtained from the bank.

Some renovation or transformation works may be vital.

In that is the case, do not forget to apply for the necessary permits at the local Authority.

1. Is it really a building land, with an authorisation to build issued by the Administration des Ponts et Chaussées (Ministry of Public Works) which is necessary for alignment of the house.
2. You need a building permit, issued on the basis of the architectural plan by the Local Authority.
3. Are the basic connections such as sewer, water, electricity, telephone and gas (if applicable) available?
4. Does the land include hidden easements, such as a passage, spring, municipality pipeline?

The Local Authority, the Land Registry, your notary and your architect can give you the answers to these questions.

• A home loan is a loan to buy a property: building land, apartment, house, etc.
• It is often in the form of a mortgage loan (a loan with a mortgage)
• By mortgaging a property, the subscriber pledges a property (generally the property for which the loan is requested), which is the guarantee for the institution lending to the borrower
• This pledged property is recorded in the mortgage registry and the lender (the lending institution) retains a right of priority of repayment if the borrower were to sell his property to settle his debts
• Interests represent the cost of the home loan and therefore the remuneration for the lending institution.

Variable rate

• The financing method most used in Luxembourg
• Updated on a frequent basis to reflect changes in market interest rates
• Also offers the possibility of making additional repayments and thus reducing the term of the loan
• Not very risky since the rate is the market rate

Revisable fixed rate

• The interest rate is generally fixed for a period of 3, 5 or 10 years
• During this period, the rate remains unchanged. The borrower thus knows the exact amount to be repaid and is protected against any increase in interest rates until the next revision of rates
• At the end of the chosen period, the interest rate is revised and can again be fixed for a specified period or replaced by a variable rate

Long term fixed rate

• The rate is fixed at the signature of the contract for the entire contract period (generally 15 or 20 years)
• Advantage: the exact amount of repayments is known in advance
• Disadvantage: the borrower is protected against any increase in market rates, but does not get the benefit of any decrease in these rates

Possibility of taking up a loan with the interest rate partly variable and partly fixed in order to balance the risk.

• The loan amount
• The interest rate
• The financing term

In principle, repayment starts as from the grant of the home loan. However, most lending institutions allow the borrower to start repaying after a period of use to be agreed upon this is the deferred capital repayment.

Thus, if you have purchased a dwelling for which the construction or renovation is not yet completed and you are still paying rent for your current accommodation, you refund only the interests due over that period until you move house. The “normal” monthly payments are only paid as from the time you move house.

Take one third (33%) of your permanent income as a benchmark to make a good decision on the part of your budget to be allocated to monthly repayments of your home loan.

Do you wish to ensure that your budget is balanced? Maintain a suitable standard of living, taking into account your permanent income and your fixed expenses.

Example of calculating disposable income and repayment capacity

This difference must not exceed +/- a third (1/3) of the monthly disposable income to ensure a decent standard of living.

The grant of a home loan is subject to certain basic conditions as well as guarantees required by the lending institution.

• The lending institution requires a personal contribution from the borrower (10 to 25% of the total cost) based on his personal situation and his repayment capacity. Generally, the bank is not willing to finance, for instance, costs which do not add to the property’s value, such as the insurance premium, mortgage fees, etc.
• In some cases (if the borrower’s repayment capacity is largely secure and the risk of default is limited), it is possible for the lending institution to finance the total cost of the loan.
• Thanks to the mortgage, the property is itself pledged to the lending institution, which reserves the right to offer the property for sale if the debtor no longer has the capacity to repay his loan. However, this is an extreme measure, only applied if there is no other solution.
• The lending institution generally also requires an outstanding balance insurance, which covers the balance to be repaid in the event of the borrower’s premature death.
• The lending institution requires the subscription to a fire insurance (generally free of charge) during the property’s construction period
• Other guarantees that may be considered are as follows:
  • Assignment of salary
  • Mortgage on another property
  • Pledging of an investment portfolio account
  • Bank guarantee
  • Pledge of a life-insurance policy
  • Guarantee from another bank or endorsement of a third party
  • etc.