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Mortgage Lending Valuation: Underlying Principles, Questions and Answers

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  • Joerg QUENTIN

Abstract

For more than 100 years, property finance in Germany has known a method of determining a secure value. This goes back to the Mortgage Bank Act (Hypothekenbankgesetz) dating from 1900, which was replaced in 2005 by the Pfandbrief Act (Pfandbriefgesetz). In order to comprehensively protect investors in Mortgage Pfandbriefe, the Mortgage Lending Value was defined as the value a property would achieve at any time during the period of the loan, in a sale at arm's length in the open market without force or coercion. In order to calculate this sustainable value, special procedures were defined and these were most recently consolidated in the Regulation on the Determination of the Mortgage Lending Value (Beleihungswertermittlungs-verordnung, BelWertV) of 2006. Since the financial crisis, prudent property valuation is at the forefront of banking supervision and developed from a consumer protection tool to a general risk management tool for banks (value-at-risk). This article provides insight into the rationale of the mortgage lending value and its underlying principles.

Suggested Citation

  • Joerg QUENTIN, 2013. "Mortgage Lending Valuation: Underlying Principles, Questions and Answers," The Valuation Journal, The National Association of Authorized Romanian Valuers, vol. 8(2), pages 34-53.
    • Handle: RePEc:vaj:journl:v:8:y:2013:i:2:p:34-53
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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