YOUR HOME
BUYING PLAN
PRACTICAL GUIDE
The bank
of a changing
world
The project
5
Buying off-plan
Buying an existing house or apartment
Choosing the right building land
Building a house
Financing8
Drawing up a financing plan
Making a down payment
Choosing a mortgage
Insurance11
Repayment insurance
Disability insurance in addition to repayment insurance
Life insurance and mortgages
AxiHome comprehensive home insurance
Government assistance 12
Capital grants and allowances
Interest support
Other types of assistance
Taxation of your property investment
15
Mortgage interest tax relief
Deduction of premiums from taxable income
(loan repayment insurance)
VAT relief
Tax credit on registration duty
Find out more
18
Buying, building or renovating a home is a major project and long-term investment
that calls for careful planning.
This practical guide from BGL BNP Paribas explains how to go about it. It also
contains useful advice on how to finance your property investment.
We will be glad to answer any questions you might have and to help you arrange
the best financing plan to meet your needs. Feel free to contact one of our
branches to arrange a personal meeting. You are under absolutely no obligation.
All the credit and financing options presented in this brochure are subject to the bank’s prior approval of applications.
4
The project
Buying off-plan
Buying an existing house or apartment
By opting for a yet-to-be-built apartment – known as
“buying off-plan” – you are sparing yourself the hassle of
dealing with the actual construction process. By looking
at the plans, you can decide whether the apartment’s
location and floor area are right for you.
To buy an existing home, you will need to complete these
steps:
These are the key steps:
__ You will sign a pre-sale agreement stipulating that
the full price is to be paid in instalments according to
how far the work has progressed.
__ The developer is required to offer you a performance
bond which will be appended to and recorded with
the notarised act of sale. The bank issuing the
performance bond guarantees to pay the cost of fully
completing the construction work according to the
terms of the contract if the seller does not fulfil the
completion obligation.
__ The bank can substitute a reimbursement bond for
this performance bond. In this case, it undertakes to
reimburse the buyer the instalments he or she has
paid if the sale is cancelled due to non-completion.
__ Besides the act of sale, you will also sign a joint owner­
ship agreement pertaining to the common areas of
the property. Owners’ rights and responsibilities will
be stipulated in a formal set of rules.
__ When you take delivery of your new apartment, an
acceptance agreement, noting anything missing or
defective, is drawn up. By signing this agreement,
the builder undertakes to remedy any problems as
quickly as possible. A full completion statement for
the building is signed by the parties and given to the
bank, releasing it from the performance bond. The
ten-year warranty provided by the builder covers the
building for latent defects for a period of ten years
from the date the apartment is handed over.
__ By thoroughly inspecting the house or apartment you
are thinking of buying, you may avoid nasty surprises.
The opinion of a building expert can also help you
estimate the value of the property, detect hidden
defects (cracks, damp) and assess what repairs will
have to be made.
__ You must also ensure that the building possesses an
energy performance certificate (Energiepass), which
has been compulsory in Luxembourg since 1 January
2008. The costs associated with the building will be
lower if the energy performance is improved.
__ In the case of an apartment, it is also recommended
that you consult the joint ownership regulations
which set out the rights and obligations of everyone
in the shared property.
__ When you have found the house or apartment that
seems right for you, you sign a preliminary contract
of purchase with the seller. This agreement contains
clauses relating to duration, termination, and
compensation for breach of contract. If you are taking
out a mortgage to finance the purchase, it is customary
to include a condition precedent whereby the contract
lapses if you fail to get a loan from a bank.
__ Some renovation or conversion work may be
needed. If that is the case, remember to ask the local
authorities for the necessary permits.
__ The purchase of an apartment, a house or land
is made official by a deed of sale signed before
a notary. Your title will be recorded with the Civil
Agreements division of the Luxembourg land registry
(Administration de l’Enregistrement et des Domaines).
5
Choosing the right building land
Before buying land to build on, make sure the answer to
the following questions is yes:
__ Is it really building land, that is, land classified as
such, for which a building permit has been issued by
the competent local authority? Before beginning any
work, you must have a building permit issued by the
local authority on the basis of your architect’s plans.
__ Are the necessary utility connections such as sewerage,
water, electricity, telephone and gas available?
__ Are there any unidentified easements on the property
such as a right of way, a spring, municipal pipes or gas
lines?
6
The local authority, cadastral records office, your
notary and your architect will be able to answer these
questions for you.
Building a house
You own land and you want to build a house on it.
If you want to deal personally with the various phases
of the project, customised building will allow you to
be involved in many different ways. Your architect will
draw up preliminary plans, taking into consideration
your tastes and your budget. The architect will also
prepare a detailed description of the interior and exterior
finishings, the fixtures and the materials to be used, and
give you a cost estimate.
Once a final project has been decided on, the architect
will supply a detailed plan and a schedule for the phases
of construction.
Since you are the person ordering the work, you may
get estimates from contractors, examine their propo­
sals and choose the companies to build your new home.
Your architect can help you find the most compe­titive
and competent construction company, with verifiable
references.
If you do not want to deal with all these matters yourself,
you can choose the home building contract option, with
a choice of traditional or prefabricated construction. The
price of the home is specified in the contract and, in
principle, cannot be changed. The company you choose to
build your home awards the contracts, co-ordinates and
oversees the work, and guarantees deadlines and quality
of service. You sign a purchase or construction contract
with the builder, containing a list of specifications for
the work to be done.
This contract must be drafted in a legal manner, and
it obliges the builder to comply with certain building­
regulations. It contains a detailed description of the
work and materials as well as the agreed total price. In
some cases, the limits and conditions for revising this
price may be included, too. To avoid delays, you can also
specify the date that work is to begin and end.
If you will be paying for your house in instalments, you
have the right to ask your builder for a bank guarantee
or performance bond by which the bank undertakes to
pay another contractor to finish the work if the original
firm does not meet its completion obligation.
On the day you receive the keys, you will sign an
acceptance agreement for the house with the builder,
which states that work has been completed and that it
complies with the original description. If you notice any
defects or missing items, it is recommended that you
note these in the agreement.
By signing this document, the builder undertakes to
correct these problems promptly.
A full completion statement for the building is signed by
the parties and given to the bank, discharging it of the
performance bond. The builder will provide you with a
ten-year warranty covering any and all latent defects
for a period of ten years.
The warranty takes effect on the date the house
is accepted. It should be included in writing in the
acceptance agreement.
7
Financing
Drawing up a financing plan
The financing plan includes the cost of items in the
project and the sources of financing. It will help you
determine the amount you will need to borrow.
To help you draw up your complete financing plan, we
have listed below most of the expenses that you will
incur when purchasing or building a home. At the back
of the guide you will find a table to fill in with your own
data.
a. The purchase price of the land or building is specified
in a contract between the seller and the buyer.
b.A deed of sale fee, also called the notary fee, is charged
for the preparation and registration of anotarised deed
of sale, which makes your property rights official. Your
notary will tell you the exact amount of these fees.
c. You should take every precaution by determining the
cost of any conversions or repairs on the basis of
precise estimates from builders or from the general
contractor in overall charge of the work. For new
construction, the price should be itemised in the
construction contract. When you build or renovate
a dwelling that will serve as a main residence you
benefit from a lower rate of value-added tax.
d.A mortgage registration fee is charged for the
notarised instrument granting the mortgage and
registering it on behalf of the bank with the Bureau
des Hypothèques. You pay this fee through your
notary. The mortgage is a lien required by the bank.
It allows the bank to sell the property if the debtor
cannot meet his or her obligations. This extreme
solution is obviously used only when there is no
alternative and only after the bank has sought other
solutions with the client.
8
e. BGL BNP Paribas recommends that you take out
repayment insurance and/or other types of insurance
to cover the outstanding balance on your mortgage in
the event of death and thus protect your loved ones.
f. You may also have to plan for auxiliary expenses,
such as water, electricity, telephone and possibly gas
connections, a collective TV aerial, land drainage
and landscaping. The local authorities can provide
you with information on the taxes related to the
construction of a house.
Also, administration fees will be charged when your
mortgage is approved.
g. We recommend that you set aside funds for unforeseen
expenses and the likely increase in theprices of
materials during the construction (if you are having
the house built).
h. If you do not start repaying your mortgage immediately,
you will also have to allow for interim interest pay­
ments. These are calculated on the basis of the
amount actually used before the repayments begin.
Adding up these items will show your total costs.
To determine how much you need to borrow as a
mortgage, you should deduct from this total all other
possible sources of financing: assets: savings, sale
of property, etc.), income from life insurance, gifts
(e.g. from family members), grants, VAT refunds, etc.
Making the down payment
Choosing a mortgage
When you apply for a mortgage, the bank will normally
ask you for a down payment calculated in relation to
your personal situation and your ability to repay the loan.
In some circumstances, however, BGL BNP Paribas can
offer you full financing for your project. Don’t hesitate
to talk this over with an adviser at one of our branches.
__ What is a mortgage and who can get one?
To enable you to build up the money to purchase pro­
perty through regular savings, BGL BNP Paribas offers
a variety of products, such as savings accounts, special
home savings accounts, mutual funds and investment
funds.
A mortgage is the ideal form of financing to enable
you to purchase an apartment or house, to build
or renovate a property, or to purchase land. It is
suitable for financing a property for your personal
use or to rent. Any individual or legal entity can
take advantage of mortgage financing, on condition
they can show proof of a stable income sufficient to
repay the mortgage over the long term.
9
__ What is the interest rate on your mortgage?
There are two types of rate which can apply to your
mortgage:
·· An adjustable rate is regularly adjusted according
to market conditions. This type of rate allows for
early redemption at no cost.
·· A fixed rate with set monthly payments to protect
you from any unfavourable interest rate changes.
This type of mortgage allows for early redemption
subject to penalties. Under certain conditions, the
fixed rate may be revised after 5, 10 or 15 years.
Its term is set according to your requirements and
ability to repay.
If you opt for a variable rate, you may choose
either to adjust your monthly payments when
the rate changes or adjust the term of the loan
keeping your monthly payments constant (in this
case, the term of the loan is reduced when the
rate falls and vice-versa).
If you opt for a fixed rate, you may choose between
a fixed rate for the entire term of your mortgage
and a revisable fixed rate, which is set for a
certain period after which you may once again
choose between a fixed or a variable rate.
You may naturally combine these 3 types of rates.
Payments are monthly. The amount of the monthly
payment depends on the interest rate, the payment
period and the amount of the mortgage. You and
BGL BNP Paribas can agree on the date for the first
deferred payment of the principal after a period
of occupancy. Thus, if you have bought a property
that is still being built or renovated and you are
continuing to pay the rent or credit associated with
your present home, you will pay only the interest
due during the period until you move into your new
home. The normal monthly payments, consisting of
principal and interest, begin only when you move in.
You can opt for fixed payments, which do not change
over the entire period of the mortgage, or graduated
payments. With the latter, you pay only the interest
during the first five years, thus making it easier for
you to manage other priorities.
The Schwabisch Hall home savings product is an
interesting alternative to a traditional mortgage. The
Schwabisch Hall savings product offers you a fixed,
preferential interest rate, payments from the savings
account and tax allowances.
__ What guarantees are required?
The bank is entitled to ask you for guarantees. Besides
a mortgage, BGL BNP Paribas generally requires that
you take out insurance to cover the outstanding
balance on the loan in the event of death, along with
the domiciliation of your salary.
Other guarantees might also be required, such as the
pledging of stocks or a life insurance policy, a guarantee
from another bank or a third party co-signing the
mortgage.
Evaluate the feasibility of your property project
You can use the credit simulator available on
bgl.lu to obtain a rough idea of your monthly pay­
ments depending on the amount that you wish to
borrow.
10
Insurance
Repayment insurance
AxiHome comprehensive home insurance
The credit protection insurance comprehensive home
insurance covers a specified amount of principal for a set
period in the event of your death. In the case of a loan,
if the policyholder dies during this period, the insurance
company will pay the outstanding balance on the loan
to the beneficiary.
AxiHome is a comprehensive form of home insurance2)
which offers the advantage of covering three types of
guarantee to protect:
The buyer’s family can thus be protected from financial
liabilities related to the mortgage if the policyholder dies.
You are entitled to tax deductions1) for repayment insu­
rance (see page 16).
Disability insurance in addition to repayment
insurance
__ Your home in the event of a fire and associated
risks, storms and hail, water damage, broken glass,
accidental breakage of domestic appliances, alarms
and surveillance equipment and earthquakes.
__ Your family in the event of damage caused to third
parties (family civil liability) and legal action.
__ Your property in the event of electrical damage, theft,
accidental breakage of multimedia, IT and office
equipment (with the exception of portable electronic
equipment which can be covered with BGL BNP
Paribas Nomad insurance).
In addition to repayment insurance, you can take out
cover for disability.
The EasiHome offer
The insurer reimburses the unpaid balance in the event
of total permanent disability, regardless of the cause.
You can simplify things by opting for an allinclusive package which enables you to finance
and insure your property in Luxembourg:
·· A home loan which can be adapted to your
situation
Life insurance and mortgages
Besides being a profitable long-term investment, life
insurance can be part of your mortgage financing
arrangements, also entitling you to tax benefits1). The
face amount of your policy (i.e. the amount paid at
maturity) can be used to guarantee your mortgage in the
event of death.
·· Credit protection insurance
·· AxiHome comprehensive home insurance
·· Special benefit for children: EUR 150 per year
per child up until the age of 12
1)
For people whose tax returns are processed in Luxembourg.
2)
AxiHome is an exclusive comprehensive home insurance policy issued by the
insurance company AXA Assurances Luxembourg and distributed by BGL BNP
Paribas.
11
Government assistance
Certain types of government assistance are determined on the basis of income,
family situation and the construction type of the applicant’s property.
Capital grants and allowances
__ Purchase grant
Capital grant which may be obtained to acquire a
property which was previously inhabited. Linked to
the granting of a mortgage by a financial institution.
__ Construction grant
Capital grant which may be obtained for the cons­
truc­
tion of a residential building, i.e. a singlefamily house or apart­ment. Linked to the granting
of a mortgage by a financial institution.
__ Home improvement grant
Capital grant obtained to finance the renovation of
a residential building. This is granted for specific
work carried out in order to improve sanitation and
safety in buildings which were first occupied more
than 15 years ago. This cannot be used for routine
maintenance or embellishments.
Our advisors will be pleased to inform you about
these different types of assistance and will help
you with your applications. Feel free to contact one
of our branches.
12
__ Savings bonus
Based on the interest and premiums on balances on
a home savings account or ordinary savings account,
provided that the money is used to purchase the
property. The bonus is capped at EUR 5,000 and is
subject to the conditions that applicants must:
·· qualify for a purchase/construction grant;
·· show that they have been saving regularly for at
least three years with a credit institution with a
starting capital of at least EUR 100.
__ A
dditional grant for architect and consultant engi­
neer fees
Financial assistance granted by the government
in addition to the construction or improvement
allowances to cover part of the cost of hiring an
architect or consultant engineer.
__ Handicapped accessibility grant
Capital grant from the government which may be
obtained to make improvements to new or existing
buildings for persons with physical disabilities.
__ Grants linked to long-term care insurance
With the introduction of long-term care insurance,
Luxembourg brought in a system of grants to enable
dependent persons to be cared for at home. Only
officially recognised dependents are entitled to
funding for home improvements.
__ A
ssistance for energy savings and the use of renewable
energy
The Ministry of the Environment grants subsidies to
private individuals for the completion of investment
projects intended to support rational energy usage
and the promotion of renewable energy.
Types of subsidised investments:
·· passive house;
·· low-energy house;
·· energy efficiency improvement of existing buildings;
·· miscellaneous facilities that improve energy
efficiency.
Some local administrative areas (communes) apply
subsidy programmes for renewable energy.
Additional information
The Citizens’ Portal on the site www.guichet.public.lu
provides all the necessary information on housing
grants, namely the eligibility conditions and the
level of grants.
13
Interest support
Other types of assistance
__ Interest subsidy
__ State guarantee
Allowance to reduce monthly interest payments,
varying according to family status and taxable
income.
__ Interest allowance
Allowance to reduce monthly interest payments
for people who have taken out a mortgage for the
construction, acquisition or improvement of their
property. The interest allowance is calculated
in order to reduce the interest expenses rate per
dependent child.
Interest subsidy is deducted from the dependent–
child interest allowance.
The State can give its guarantee to a credit institution
if borrowers are unable to supply adequate security
themselves. To qualify for a state guarantee, applicants
must satisfy certain savings-relatedconditions.
__ VAT refunds
To encourage housing construction, the government
has introduced two measures relating to valueadded tax (VAT):
·· Direct application of the lowest rate (3%) to building work. A request must be filed before the workbegins and must be approved by the competent
authority (Administration de l’Enregistrement etdes
Domaines).
·· Refund of the difference between VAT paid at 17%
and the lowest rate of 3% for main residences.
The allowance for the lowest VAT rate is capped at
EUR 50,000 per property.
__ Local allowances
Some local administrative areas (communes) in
the Grand Duchy of Luxembourg encourage home
ownership by offering capital allowances. In most
cases, applicants must first qualify for a purchase/
construction grant, under the Housing Support Act
of 25/2/1979 (amended).
BGL BNP Paribas advisers will be happy to provide
you with more information on these aids.
14
Taxation of your property investment
1)
Mortgage interest tax relief
No matter what type of mortgage you have taken out,
you are entitled to deduct interest payments from your
taxes.
__ Building land
__ Owner-occupied property
·· Loan interest can be deducted in full as professional expenses while the building is unoccupied
because of construction or conversion work.
·· Once the building is occupied, the amount of interest deductible depends on household size:
·· Loan interest can be deducted in full if construction begins within two years of purchasing the land
(deduction under “professional expenses”).
Period
·· Up to EUR 336 of loan interest can be deducted if
work begins more than two years after the land
is purchased (deduction under “special expenses”).
Deduction per person
1-5 years
EUR 1,500
6-10 years
EUR 1,125
> 10 years
EUR 750
The rental value of the property must be deducted
from these amounts, as follows:
·· 4% of the portion of unit value up to EUR 3,800;
·· 6% of the portion of unit value exceeding EUR 3,800.
__ Rented property
Loan interest can be deducted in full (“professional
expenses”).
1)
Taxation depends on the individual situation concerned and may be
subsequently amended (see art. 32 para. 7 of the Grand Ducal Regulation of 13
July 2007). The possible deductions and tax benefits described in this brochure
apply to Luxembourg tax filers.
15
Deduction of premiums from taxable income (loan repayment insurance)
__ Main residence
·· Single premium policy
Subscription to an individual policy :
Deduction of up to EUR 672 for each person in the household. The payment of a single premium may also give
rise to a supplement and an additional supplement.
Insured party
Supplement
up to age 30
Additional supplement,
age 31 to 50
Additional supplement,
over 50
Taxpayer
EUR 6,000
EUR 480 per year
EUR 9,600
with 1 child
EUR 7,200
EUR 576 per year
EUR 11,520
with 2 children
EUR 8,400
EUR 672 per year
EUR 13,440
with 3 children
EUR 9,600
EUR 768 per year
EUR 15,360
·· Annual premium policy:
Deduction of up to EUR 672 for each person in the household (under special expenses).
__ Rented property
Deduction of up to EUR 672 for each person in the household.
16
VAT relief
Tax credit on registration duty
To encourage housing construction, the government the
building or renovation of property for residential purposes
is eligible for the reduced rate of VAT at 3%.
When you buy a house or apartment as your main
residence or a plot of building land in the Grand Duchy of
Luxembourg, you are entitled to a tax credit, provided the
sale is recorded in a notarised deed. You can claim a rebate
on registration duty. This rebate amounts to a maximum
of EUR 20,000 per purchaser. The tax credit can thus be
increased to EUR 40,000 in the case of a joint acquisition
by married taxpayers or two non-married taxpayers.
The building contractor or firm, which is responsible for
charging VAT at the correct rate, must file a request for the
reduced rate with the proper authority (Administration de
l’Enregistrement et des Domaines) before commencing
work. If no authorisation has been issued, the contractor
or firm will apply the normal rate of VAT. The owner
must then apply for a partial rebate (i.e., the difference
between 17% and 3%) via a refund procedure.
The refund procedure is mandatory in the following cases:
sales of new buildings not yet occupied, sales of finished
sections (at the date of the notary’s deed) of buildings
under construction, purchases of building materials, and
invoices not exceeding EUR 3,000.
The maximum allowance under the reduced VAT rate is
EUR 50,000 per dwelling.
17
Find out more
This practical guide has been written to answer many of the
questions you may have about buying property.
It is designed to provide general information that will make the
process easier for you.
Why not ask for a personal interview with one of our advisers? It’s
all part of our service, and you are under absolutely no obligation.
You will find a list of our branches on the following page.
The information herein reflects prevailing conditions in the Grand Duchy of Luxembourg in August 2014.
It is provided without any commitment or responsibility incumbent on BGL BNP Paribas.
BGL BNP Paribas shall not be held in any way liable or responsible if the information is incorrect, incomplete or out of date.
18
The information in this brochure is published purely as an indication and without any commitment or assurance that it is complete, accurate and up to date. It in no way
and in no case constitutes an offer or solicitation for any purchase or sale of any kind. It does not constitute, and should not be taken to represent, any form of legal, tax or
accounting advice.
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The bank
of a changing
world