Mortgage lending for civil servants is under a special star. Officials are among the favorite clientele of the banks. Why this is so, we want to explain in this post. However, the basis for any construction financing, including for civil servants, is the credit check.
The credit check
When assessing any type of financing, banks use the likelihood that the borrower will not repay the loan. This consideration forms the basis for each loan application and is called a credit check.
These factors give the bank credit risk, the creditworthiness of the customer. Incidentally, postal code and street information indicate how often loans from this area were not repaid. The applicant is here provided with a “flaw”, which he has no responsibility.
It is understandable that there are more or less well-financed neighborhoods and therefore more credit losses are recorded in one area than in the other. This assessment is called geo-scoring and is not undisputed.
Large credit bureaus such as the Credit bureau, however, deny the use of this technique to determine the Credit bureau score. Whether banks and savings banks have internal systems running for a geo-scoring, must be a guess, because it will admit no house on its own.
Construction financing for civil servants compared
Our following comparison gives you an overview of the current conditions of various banks and intermediaries – also for civil servants and employees in the public sector:
Officials with better credit scoring
Experience has shown that a married family man who works as a construction smith gets worse credit scoring than a single official.
A married father faces the risk of divorce and substantial child support. The construction industry has seasonal fluctuations in employment.
The single officer threatens neither the termination nor the divorce risk.
Since 2016, the credit check has not only been based on the classic test, but also on the “Residential Property Credit Directive”. This is the result of the implementation of an EU directive.
It aims to ensure that loans are only given to people who can demonstrate that they are able to repay the funding as part of their statistical life expectancy. The effects, however, are much more far-reaching.
Lower interest rates for civil servants
In the sector of installment loans, special “civil service loans” stand out in particular. Officials pay a cheaper interest rate than an employee. This also often applies to mortgages. Why?
The non-cancellability of an official brings this group of people with a financing, the necessary benefits for cheaper loans.
It is true that mortgage loan financing primarily depends on the property to be financed and the associated mortgage. Regular salary payments also play a role. For civil servants, this salary is guaranteed for the entire working life. There are no economic risks such as construction or structural risks in some industries.
Even in the case of serious illness and the resulting disability, civil servants are generally better off than workers or the self-employed.
Officials need less equity
In addition to the lower interest rates, special mortgage lending often provides another advantage for civil servants: the financing institutions are much more flexible in setting their capital requirements. This means that the equity ratio can be lower than other professionals.
However, it is desirable for civil servants that the funding be fully repaid upon reaching retirement. Otherwise, they run the risk that they will meet the same fate as anyone else who still needs financing or follow-up financing at age 65: Banks reject it on the basis of age.
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