Prudent value (valeur prudente)

Prudent value is the European standards’ response to a recent banking requirement. Since 1 January 2025, the Capital Requirements Regulation (CRR), revised in 2024, requires banks to value the property they take as security under “prudently conservative valuation criteria”. The Charte de l’expertise en évaluation immobilière (the French property valuation charter) describes this value as a conservative valuation that excludes any expectation of price increases, favours long-term sustainability and aims to protect the lender against cyclical fluctuations.

An important point: the Charte specifies that prudent value is not a stand-alone basis of value in the international standards, but a methodology applied from market value. In practice, I start from the market value and adjust it where that value appears materially higher than what would be sustainable over the life of the loan.

Where the rule comes from

Title III, § 1.16 of the Charte (6th edition, November 2025) presents prudent value and refers to article 229 of the CRR. The EVS 2025 devote guidance note EVGN 2 to it, which details the application of the prudently conservative criteria, in particular the exclusion of expectations of a rise and the adjustment where the market value is judged unsustainable. The definition of “property value” appears in article 4(1), point 74a of the CRR as amended by Regulation (EU) 2024/1623.

In a valuation report

A report intended for a credit institution may contain two figures: the market value at the valuation date, and the prudent value used to calculate the loan-to-value ratio. I explain what separates the two: phase of the market cycle, dependence of the value on a future renovation, income not yet stabilised, exposure to a climate or regulatory risk. I state the definition applied and the term of the loan envisaged where it has been communicated to me. For a private individual, prudent value changes nothing about the possible sale price; it may, on the other hand, reduce the amount that can be financed.

Example

A 70 m² flat in a town where prices have risen by 30 % in three years. Market value by comparison: €245,000. Analysis over ten years shows that the current level exceeds the long-term trend by about 8 %. I adopt a prudent value of €225,000. With a loan-to-value ratio of 80 %, the bank will lend €180,000 instead of €196,000: the buyer will have to make up the difference with a larger deposit.

Not to be confused with

Mortgage lending value is a distinct basis of value, defined by the CRR and founded on stabilised income. Market value remains the common reference from which these conservative values are derived.