EU sets conditions for treating residential property under construction as completed for capital purposes
Lending institutions can treat a property under construction as completed only where a bank or insurer guarantee meets the 30% risk-weight test and the provider sits outside the lender's group
Change
Commission Delegated Regulation (EU) 2026/849 of 16 April 2026, published 23 July 2026, sets the regulatory technical standards under Article 124(14) of Regulation (EU) No 575/2013 defining what counts as an equivalent legal mechanism ensuring a residential property under construction is completed within a reasonable time frame, and enters into force on 12 August 2026.
Why it matters
The mechanism qualifies only where the completion guarantee is required by the law of the Member State where the property is built, documented in writing, enforceable until completion, and provided by an authorised credit institution or insurance undertaking whose direct unsecured exposure carries a risk weight of no more than 30% under Articles 120 to 122 of Regulation (EU) No 575/2013. Where lender and protection provider belong to the same group, the guarantee does not qualify at consolidated level, so the benefit is confined to individual-institution own funds calculations. Multi-unit developments need a single guarantee from one provider or from providers jointly and severally liable. The provider cannot cancel, shorten, or raise the effective cost of the guarantee, or release itself from its obligations, except for unpredictable and unavoidable events covered by other insurance; obligor default cannot block activation. On activation the provider must fund all remaining construction costs without cap, including budget overruns, or pay the lender the amount still owed where the guarantee converts to a repayment guarantee.
Implications
- — Credit risk and capital teams at institutions lending against residential property under construction must test each completion guarantee against the 30% risk-weight ceiling on a direct unsecured exposure to the protection provider under Articles 120 to 122 — a guarantee from a provider failing that threshold does not qualify as an equivalent legal mechanism, and the exposure cannot be treated as secured by completed property.
- — Banking groups whose lending entity and guarantee provider sit within the same group must recalculate: the completion guarantee is excluded from equivalence at consolidated level, so any capital benefit taken on a consolidated basis from intra-group completion guarantees must be unwound and the benefit confined to the individual institution.
- — Lending institutions financing multi-unit residential developments must confirm that every housing unit in the property is covered by one guarantee, from a single provider or from providers jointly and severally liable — unit-by-unit guarantees from different providers do not satisfy the Regulation, and the property cannot be treated as completed.
- — Credit institutions and insurers writing completion guarantees must strip cancellation, cost-escalation, unilateral reduction and self-release clauses from guarantee documentation and accept uncapped completion-financing exposure including budget overruns, since any such clause outside the narrow unpredictable-events carve-out disqualifies the guarantee.
Who is affected
- — Credit institutions lending against residential property under construction in the EU
- — Credit risk, capital and prudential reporting teams calculating own funds requirements under CRR
- — Credit institutions and insurance undertakings writing completion guarantees as protection providers
What to watch
- — Effective: 12 August 2026 — the Regulation enters into force on the twentieth day following its 23 July 2026 publication in the Official Journal and is binding in its entirety and directly applicable in all Member States.