Do you want to take out a loan to buy a home? Remember that your bank cannot grant you a mortgage without a valuation.

The compulsory valuation

From 1 January 2022, banks must carry out valuations of properties before granting mortgages.

The compulsory valuation is designed to assess the real value of a property and, as a result, to determine the amount of the loan that the bank is willing to grant to its customer to buy the property. This new measure is the result of a directive implemented by the EBA (European Banking Authority) in July 2021.

This EBA directive is designed to prevent banks from lending amounts far above the value of properties put up for sale.

Please note that, although the valuation is compulsory from 1 January 2022, the National Bank of Belgium (NBB) is allowing banks a period of six months to enable them to integrate this new measure into their procedures.

Compulsory valuation and quotas

With a view to increasing the chances of mortgage loans being repaid, an additional measure is being added to the compulsory valuation

This additional directive has been in force since 2020 and limits loan quotas to 90% or 80%, in the case of investment properties.

However, it is important to remember that the thresholds in relation to loan quotas are still not compulsory. In other words, lending bodies can apply different quotas to those imposed by the directive, in some cases.

What does the valuation involve?

Essentially, the European Banking Authority does not compel banks to carry out valuations to assess the amounts of mortgage loans. It does impose a specific process to ensure an objective valuation of properties.

In effect, a bank can call on an internal or external valuer to determine the value of a house or flat. Establishments which opt for external service providers must draw up a list of certified valuers.

When carrying out a valuation, the valuer must visit every part of the property (both inside and outside), before determining its value.

Banks which have a reliable statistical valuation model can carry out a desk-top valuation. However, it must still be carried out by a certified valuer, whether internal or external.

Please note that the European Banking authority is still working on this new directive and studying possible scenarios, such as the automation of valuations or the application of the principle of proportionality.

The impacts of the compulsory valuation on equity

For private individuals wanting to take out a mortgage in 2022, the compulsory valuation may have a considerable impact on the equity they must have.

In effect, if the valuation is much lower than the price of the property, the future buyer must make a higher personal contribution to finance their home-buying project.

To optimise the chances of being granted a mortgage and ensuring the success of an investment in property, it is therefore preferable to save as large an amount as possible. The higher the equity, the more bankers will be willing to grant attractive loans.