How a State home loan guarantee can help you buy property

It’s not always easy to come up with the guarantees your bank will ask for when you apply for credit to buy a home. But did you know that the Luxembourg government can guarantee part of your mortgage loan, subject to certain conditions? myLIFE explains how it works and who is eligible.

Sandra and William have been together for a few years and they’re excited about their plans for the future, which include buying a house. They know they won’t be able to afford a mansion on their modest incomes, but they’ve already picked out a property that ticks all the right boxes. With high hopes, they arrange a meeting with their bank adviser to discuss financing for the house where they’re already dreaming of raising a family.

But then they’re brought back down to Earth with a bump. Despite the young couple’s savings and promising profile (regular income, low level of debt, diligent account management), the bank can’t grant them a real estate loan without a guarantee (mortgage, deposit, etc.). The bank asks them to stump up between 10% and 20% of the property value to cover things like notary fees and acquisition charges. Sandra and William aren’t in a position to pay and can’t provide sufficient guarantees to secure their loan. And their families don’t have deep pockets either.

Should they give up on their dreams of home ownership, their interior decorating plans or that spare room for a future baby? Luckily, all is not lost. Their banker reassures them by telling them about government aid schemes designed to help families get onto the property ladder, subject to certain conditions. The State home loan guarantee is one such scheme.

The State guarantee covers the portion of the loan that exceeds 60% of the total cost of the investment, but without exceeding 30% (or €269,807).

The State home loan guarantee: a much-needed helping hand

“When a household can’t provide sufficient guarantees of their own to secure credit to finance the construction, purchase, improvement, conversion or renovation of a dwelling, the State may (subject to certain conditions) help to guarantee a home loan,” the banker explains to Sandra and William, who are in this exact position. “This is called a State home loan guarantee.”

In practical terms, this means that the State supplies one part of the total guarantee you’ll need to provide to secure a loan. Specifically, the State guarantee covers the portion of the loan that exceeds 60% of the total cost of the investment, but without exceeding 30% (or €269,807¹).

Sandra and William’s circumstances mean that this could be their ideal loan solution. All they need to do now is check that they meet the eligibility criteria.

Obligations and eligibility criteria for the State home loan guarantee

Sandra and William’s banker helps them to go through the various conditions for securing this type of government assistance.

• • The mortgage loan must be used for the construction, purchase, improvement, conversion or renovation of a dwelling that is both located in Luxembourg and used as the applicant’s primary and permanent residence.
  • One of the borrowers must have saved for at least 3 years in a savings account with the same bank. The balance in the savings account must increase by a net amount of €1,000 per year for a period of at least 3 years prior to the date of application.
  • The loan must have been taken out with an accredited bank and represent at least 60% of the cost of the project.
  • The annual net income must not exceed €9,400 index 100 (€81,936.04 index 871.66 for 2022) for a single applicant and €11,200 index 100 (€97,625.92 index 871.66 for 2022) for several applicants.
  • The couple must not own another home in Luxembourg or abroad at the time the loan is granted.
  • Lastly, to qualify for the State home loan guarantee, the loan must be guaranteed by a mortgage on the dwelling for which the loan has been granted. The lending rate of the loan must not exceed the ceiling set by Article 21.

Sandra and William go through each point carefully and realise they meet all of the criteria! They can safely expect to receive a helping hand from the government to make their dream a reality.

N.B.: a State home loan guarantee can also be granted for loans taken out with an approved bank or financial institution outside Luxembourg (within the European Union and European Economic Area).

Applications for the guarantee are submitted through the financial institution granting the loan.

How to apply for a State home loan guarantee

Applications for the guarantee are submitted through the financial institution granting the loan. In our example, Sandra and William’s banker is the person who will submit it to the Ministry of Housing.

To that end, the banker will help Sandra and William to fill out a State home loan guarantee request and send it to the Single Point of Contact for Housing Assistance (11 rue de Hollerich, L-1741 Luxembourg) along with the following supporting documents:

• • a copy of your identity document
  • a declaration concerning the composition of your household
  • Home savings account statements for the past three years
  • A copy of the contract of sale agreement or the authentic deed in the case of a sale of property under construction
  • a declaration of honour signed by yourself certifying that the members of your household have no other property in Luxembourg or abroad;
  • A salary certificate in the name of the applicant (or both applicants for joint applications)
  • a financing plan
  • the terms and conditions of the loan for a foreign national, a certificate attesting to your right of residence for more than three months.

While they wait to hear back, Sandra and William can look into the other forms of housing assistance (home ownership subsidy, interest subsidy, savings subsidy, improvement subsidy, etc.) available from the Single Point of Contact for Housing Assistance or use the assistance simulator at Guichet.lu. They may find out that they’re eligible for other forms of government assistance too.

¹ Corresponding to the index 100 of the average annuel construction price index (1037.72 for 2022).