Calculation of the LTV ratio in FinRep

Article 239x from Annex V mentions that the LTV ratio should be calculated in accordance with the method for the calculation of the ‘current loan-to-value ratio’ (LTV-C) laid down in section 2, chapter 1, paragraph 1 of the ESRB Recommendation on closing real estate data gaps. According to Annex IV, Art 2.3 (b) of the ESRB Recommendation, VC is adjusted for changes in the prior liens on the property. The version from 2016 of the Recommendation also contained an additional passage which was deleted in the 2019 update: (d) Is adjusted by the total amount of the outstanding RRE loan, disbursed or not, that is secured through ‘prior’ liens on the property. In the case of more senior liens on the property, the full amount of the debt secured by these more senior liens needs to be deducted. In the case of ‘equal ranking liens’, an appropriate proportional adjustment should be made. In the current version of the Recommendation or in Annex V it is not clear how VC is adjusted regarding the prior liens on the property (e.g. they are deducted from the full value of the property, proportional adjustments are performed).

The unclarity in the calculation of the LTV ratio allows for different interpretations and cause the ratio to be calculated differently by the reporting entities.