Mortgages in the Netherlands
How do I get a loan for buying an apartment or a house?
Buying residential properties, e.g. an apartment or a house in the Netherlands, can be expensive. Therefore, unless you have a large amount of savings, you will probably need to take out a loan or mortgage with a lender to enable you to purchase your property. Even if you are only temporarily living in the Netherlands, it may be practical to purchase a property as your home during your stay. You will then have the option to either sell or rent out the property when you leave. If you want to rent your property out, you need permission of your bank. The type of hypotheken (mortgages) that you will be entitled to access will depend on your income level. The banks offer a wide range of mortgages but these are the elements that you should consider:
- the amount you borrow (the capital)
- the amount of interest you pay on the loan
- the duration or ‘term’ of the mortgage
By considering these three factors, you need to decide the most appropriate method for you to repay the loan. All the major Dutch banks provide mortgage lending facilities for individuals wishing to purchase a residential property.
Are there restrictions on how much I can borrow for my mortgage?
The total amount that you will be allowed to borrow will be determined by your bank or mortgage provider. This will depend upon a combination of how much you can afford to repay each month and the duration (term) for repayment. A longer repayment term will typically reduce your monthly payments, but will ultimately cost you more in the total interest paid on your loan.
Due to recent stricter mortgage guidelines published by the government and the Financial Markets Authority, the Dutch banks and other mortgage lenders are now required to operate within a new code of conduct. This provides standards on how much you can borrow based on your income. This code ensures that the affordability of your mortgage is guaranteed. Through these measures, the number of people in the Netherlands with mortgage payment problems is one of the lowest in Europe.
What are the types of mortgages available in the Netherlands?
From 2018, you can only take out a mortgage that is a maximum of 100% of the value of your house – including 2% overdrachtsbelasting (property transfer tax). This is referred to as ‘Loan to Value’ (LTV).
At first glance, the variety of mortgages on offer from the banks may seem bewildering. However, most of these mortgages come in one of two general categories: capital repayment and interest payment; and only interest-only repayment .
Capital repayment and interest payment
Mortgages which are based upon repayment of both the capital (value of the loan) and interest are tailored by the banks to provide various repayment profiles. In essence, they all expect you to pay both the interest on the original loan and the value of the loan itself within a given time period (term). A typical mortgage term can be up to 30 years, but will depend on your age and circumstances.
One popular type of capital and interest repayment mortgage fixes the amount that you repay each month on your capital loan over the term of the mortgage and is termed a lineaire hypotheek (linear mortgage). Hence, in the beginning, the amount that you pay each month will be high, as you will be paying off a fixed amount of your capital and a relatively high amount of interest (relating to the amount of capital owing). However, the monthly payments will decrease over time as the capital of the loan is paid off and the corresponding interest reduces. The benefit of this type of mortgage is that it can be repaid relatively quickly. However, as the size of the interest repayment reduces with time, you will find that you will not be able to claim as much tax benefit (as the payment of the capital is not tax deductible).
An alternative type of capital and interest repayment mortgage is an annuïteitenhypotheek (annuity mortgage). With this mortgage, the total amount that you pay each month is fixed over the repayment term. The benefit of this type of mortgage is that the repayment remains the same each month and thus makes it easier for you to manage your monthly expenditures. In the beginning, most of the monthly repayment will be just the interest on the loan, whilst later in the mortgage term you will start to pay off a greater proportion of the capital. Tax is only deductible on the interest of the mortgage. Hence, you will find that the proportion of your monthly repayment – on which you can claim a tax relief – will reduce during the given time period.
Remark: currently annuity mortgage and linear mortgage are the only kinds of mortgages that are eligible for hypotheekrenteaftrek (interest tax deduction), whereby the loan is repaid within 30 years.
With an interest-only repayment mortgage, you only pay back the interest on the value of your mortgage each month. The benefit of this mortgage is that the payments you make each month will be lower and thus more affordable. However, as you are not paying off any of the capital (value of the loan), you are not in a position to own your house; that is, unless you are confident that you will have sufficient funds to pay off the original loan as a lump sum at the end of the mortgage term.
It should be noted this kind of mortgage is no longer deductible from your income for tax purposes. Banks are no longer eager to offer this type of mortgage anymore. However, you can take over your old mortgages to your new house and continue having an interest-only or bank savings/investment mortgages or a combination and keep the eligibility of the interest deduction.
There are other types of mortgages based upon payment into an investment fund. The idea is that you only pay off the interest on the loan and at the same time contribute into an investment fund. At the end of your investment term, you should have acquired a sufficiently high return on your investment to (hopefully) be able to pay off the capital of your mortgage. However, as the global markets are still recovering from the crisis in 2008, this type of mortgage is now less popular with both borrowers and lenders.
Other mortgages link repayment of the interest on the loan to paying for an insurance product, such as life insurance, or paying into a savings policy. The idea is essentially the same as above, in that you acquire sufficient funds over the term of the mortgage to pay off the original loan.
Remark: These products are not available anymore within the mortgage advice for starters. Existing mortgages containing these kinds of products may be continued.
How can I decide which mortgage is best for me?
If you are unsure of which mortgage is best suited for your needs, it is suggested that you seek advice from one of the following:
- a bank or mortgage lender
- an independent specialised hypotheek adviseur (mortgage broker)
- a professional financial advisor
In helping you to determine which mortgage is most appropriate for your circumstances, you need to ask yourself the following questions:
- How much do I want to borrow?
- How much can I afford to pay each month?
- How long do I want to take to pay off the mortgage? (This will be dependent upon a variety of factors such as your age, how long you intend to live in the Netherlands and the security over your future employment)?
- When, how much and how do I want to redeem my mortgage?
- Which risks do I want to be insured against?
- What type of mortgage do I want?
- How important are the overall interest costs, risks, flexibility and tax benefits to me?
How is the interest on my mortgage calculated?
The amount of interest you pay on your mortgage is based upon the interest rate agreed with your bank or mortgage lender which is applied to the value of the loan. Most Dutch mortgages are offered for up to a term of 30 years. Within the term, the bank will normally allow you to choose how long you wish to fix the rate of interest on your mortgage. This can typically be anywhere from one to 20 years. Hence, if you think the current interest rate will be reduced in the future, you may elect to fix the rate for only a few years. Conversely, if you think the interest rate will go up in the future, you may wish to fix the rate for a longer period. It should be noted that banks will offer a spread of rates depending on the duration that the rate is fixed. The interest rate quoted will typically rise with the increasing length of time that it is fixed; this is to cover the lender’s risk if the benchmark interest rate (set by the European Central Bank) rises in the future.
At the end of the fixed rate period, you are entitled to agree to a new fixed rate with your lender.
What type of information is required when getting a mortgage?
The requirements for getting a mortgage will depend on the bank or mortgage provider you choose. Generally, people originating from an EU member state country and who have a permanent employment contract do not experience any difficulties in getting a mortgage.
The bank or mortgage provider will want to know about the property that you wish to purchase. They may ask for you to pay for an independent inspection report on the property before they make any decision on whether to grant you a mortgage.
From January 1, 2017, homebuyers aged between 18 and 40 can receive the schenkingsvrijstelling (parental gift tax exemption). This is a gift of up to 100.000 euros and it is tax-free. It can be received from their parents or others as a contribution towards buying, renovating or paying the mortgage on a property. The parental gift tax exemption has been raised and lowered in recent years in response to changes in the housing market.
For people from outside the EU, the bank or mortgage provider may want to consider the following aspects:
- The kind of residence permit you have
- The level of security afforded by your employment contract and what type of job you have
- Who is your employer? Generally, it is easier to get a mortgage if you work for a well-known, larger company than for a small company
- How much you currently earn after tax and pension deductions (take-home pay)
- What other significant expenses you currently have, e.g. paying for a car, any bank loans etc. and your general financial situation
- The nationality of your partner (is he/she Dutch or not?)
When do I start to repay my mortgage?
You usually begin repaying your mortgage within a month of completing the purchase of your home. The bank will normally collect your monthly mortgage payments by direct debit.
What happens if I find that I can no longer afford to pay my mortgage?
It should be remembered that your house is considered by the mortgage lender as security against the loan. Therefore, effectively you do not own your house until the mortgage is paid off in full. Should you default on your monthly payments (due to personal circumstances, e.g. getting into debt, becoming unemployed or divorced), the lender has the right to repossess and sell your house to pay off the remaining debt. However, this is very much a last resort for the lender, as most banks realise that the housing market in the Netherlands is still very recovering. Therefore, it may be difficult to sell your house and the current value of your house may be less than the original loan value on the mortgage.
The banks will always explore possibilities with you to address your current difficulties, before taking the more drastic action of repossessing and selling your property. If a bank does decide to sell your house and the sale value is less than the remaining mortgage value, you will still be expected to pay off the difference (with interest).
The National Mortgage Guarantee (Nationale Hypotheek Garantie –NHG) is provided by the Homeownership Guarantee Fund (Waarborgfonds Eigen Woningen – WEW). The main aim of the fund is to promote the responsible purchasing of private property. Hence, if you take out a mortgage to buy a house, you may be eligible for the NHG coverage. The NHG is only applicable for mortgages up to a certain limit. A summary in English can be found at www.nhg.nl/english-summary/Information-for-consumers/What-is-nhg. You may have to check the Dutch version in order to find the current maximum value.
If you are forced to sell your property by your mortgage lender and the value of the sale is less than the original mortgage loan, then the NHG may settle your outstanding debt with your mortgage provider.
Can I claim mortgage tax deductions on my mortgage?
The interest that you pay on your mortgage might be hypotheekrenteaftrek (tax deductible) from your earnings. If you are on a Dutch payroll and are considered a resident taxpayer, meaning you pay taxes in The Netherlands, you are entitled to the same benefits that Dutch citizens have. The mortgage relief or tax deductible has always been a contentious issue in Dutch politics and this tax benefit may become more limited in the future.
For your personal tax situation, it is advisable to look at the Belastingdienst (Tax Authorities) website (in Dutch only) or contact them on the English speaking telephone help line by calling 055 538 5385.