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 €145,853).

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 or improvement 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 €145,853¹).

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 or improvement 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 held a home loan savings account  with the same banking establishment for at least three years and must have made regular annual deposits on the account of at least €290. The three-year period starts on the day when the assets in the home loan savings account reach €240.
• The bank must have granted a loan covering at least 60% of the property purchase price (or the cost of construction/improvement work).
• The monthly loan repayment must not amount to more than 40% of the total disposable income of all borrowers combined.
• The interest rate must not exceed the limit set by Article 39, sub-paragraph 1 of the amended Grand Ducal Regulation of 5 May 2011 by more than 3%.
• 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.

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:

• Home loan savings account statements for the past three years
• A copy of the contract of sale agreement
• A salary certificate in the name of the applicant (or both applicants for joint applications)
• Applicants who are not Luxembourg citizens must also provide a copy of their residence certificate, residence permit or certificate of registration, or of their currently valid passport with a residence permit

Once these steps have been taken, all you have to do is wait for the Ministry to reply, which typically happens within three or four weeks of the request. In 2018, no fewer than 369 State home loan guarantees were granted, for an average amount of €99,692 ².

While they wait to hear back, Sandra and William can look into the other forms of housing assistance (construction subsidy, interest relief, interest subsidy, savings subsidy, subsidy supplement for architect or consulting engineer fees, 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 average annual level of the construction cost index of 777.88 in 2017. Source: Acquisition d’un logement, Ministry of Housing, Chamber of Notaries, ABBL
² Rapport d’activités 2018, Ministry of Housing