Calculation of the collateral value of immovable property considering minimum level of over-collateralisation ratio

For immovable property collateral, no value other than the market value or, in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, the mortgage lending value of the immovable property is recognised. For determining the maximum recognised percentage under the standardised approach or the applicable LGD* and the required collateralisation levels for the secured parts of IRB exposures, the value to be used is either the market value or, in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, the  mortgage lending value to derive in a first step the maximum amount which may receive the privileged risk weight dedicated to the recognition of immovable property collateral, which may, as applicable, in a second step be reduced to take in particular account of any prior claims on the immovable property. 1. Standardised approach (SA) Under the SA for credit risk, the conditions in Article 124(1) for considering an exposure or part of an exposure as fully secured by mortgages on immovable property and in Articles 125(2) and 126(2) CRR for considering an exposure or part of an exposure as fully and completely secured by mortgages on residential or commercial immovable properties, respectively, exclusively refer to (i) the market value of the immovable property or (ii) the mortgage lending value in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions. Consequently, no other value is recognised for this purpose. For the same purpose, the conditions in Articles 125(2)(c) and 126(2)(c) CRR require that the valuation rules set out in Article 229(1) CRR are met, where the last sub-paragraph requires that the market value or mortgage lending value shall be reduced as appropriate to reflect the results of the monitoring required under Article 208(3) CRR and to take account of any prior claims on the immovable property. As a consequence, for determining the part of the loan to which the risk weight for the fully and completely secured part is assigned, the maximum recognised percentage of the market value or mortgage lending value in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions,  according to Article 125(2)(d) or 126(2)(d) CRR applies to the market value or mortgage lending value, as applicable, after being reduced, as appropriate, to take account of any prior claims on the immovable property or of the results of the monitoring required under Article 208(3) CRR. Therefore, only the calculation provided as alternative 2 in the background on the question leads to the correct result. 2. IRB Approach Under the IRB Approach, for the purpose of recognising immovable property collateral in accordance with Article 199(1)(a) CRR, the criteria in Article 230 CRR for determining the applicable LGD* and the required collateralisation levels for the secured parts of exposures refer to the value of the collateral. For this purpose, Article 229(1) CRR requires the value of the collateral to be the market value or or mortgage lending value, similarly to how this is specified in the SA. Also in line with the SA, the last sub-paragraph of Article 229(1) CRR requires that the market value or mortgage lending value shall be reduced as appropriate to reflect the results of the monitoring required under Article 208(3) CRR and to take account of any prior claims on the immovable property. As a consequence, for determining the applicable LGD* and the required collateralisation levels for the secured parts of exposures, the value of collateral to be used for this purpose is the market value or mortgage lending value, as applicable, after being reduced, as appropriate, to take in particular account of any prior claims on the immovable property.