Buy to let mortgages and investment properties are on the rise

Buy to let mortgages and investment properties are on the rise

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Expat Mortgages are experienced independent mortgage advisors with specialists in Amsterdam, Haarlem, Rotterdam, Utrecht and The Hague, specialising in helping expats navigate homebuying in the Netherlands.

Expat Mortgages is introducing a new brand, Expat Buy2Let, to help customers who are looking for investment property.

For a number of years, banks no longer offered buy-to-let mortgages in the Netherlands. In 2015, this trend finally reversed and mortgage advisors are seeing a growing demand for a so-called investment property.

A buy-to-let mortgage is intended specifically for someone who wants to buy residential property to rent out. For expats who have the financial means, it's a great way to invest their savings and enjoy extra, tax-free income in the form of rent.

The appeal of investment properties

So many expats are currently interested in buying properties in the Netherlands because of the potentially great return on their investment.

It's much more lucrative than putting money in a savings account due to the incredibly low interest rates right now.

There are three main reasons why expats are looking at buy-to-let properties:

  • Emotional: Many people prefer looking at the house they invested in and being able to say "This is my property" rather than looking at their bank account and seeing money there.
  • Sound long-term investment: Over time, even with the recent economic crisis, properties have proven that they go up in value each year.
  • Tax advantages: The rental income you get from a property is tax-free.

Tax advantages of buy-to-let

In addition to the monthly rent that you receive from tenants being tax-free, there is another advantage of putting your money in a house rather than in a savings account.

When you file your income tax return, your asset (your property) is taxed in Tax Box 3.

For example, you have a property asset of 300.000 euros in Tax Box 3, but you also have a negative asset because you have a mortgage. The Dutch tax office will deduct your mortgage from your assets and the balance becomes your positive assets.

Assets are taxed, depending on your total net worth, at 0,86 percent up to 1,62 percent per annum, which makes it very interesting from an investment perspective.

Therefore, tax-wise it could be more financially beneficial than putting the same amount of money in a savings account.

Why buy-to-let ended in 2009

Along with changes in legislation for banks, the decision by mortgage lenders in the Netherlands to stop offering buy-to-let mortgages also coincided with the worldwide economic recession.

The new legislation made it an obligation for banks to have certain capital assets on their balance sheets depending on the risk in their portfolio. Buy-to-let mortgages are higher risk mortgages in their opinion, so it meant they had to have much more capital available, which they didn't have.

For this reason, banks decided to stop offering buy-to-let mortgages between 2009 and 2015, with the exception of cash buyers and certain professionals.

The situation until 2008

Up until 2008, it was possible to get a 60 percent loan-to-value mortgage (LTV), or one not exceeding 10 times the annual rent.  

So if your rental income was 10.000 euros per year, you could never get more than a 100.000 euro buy-to-let mortgage.

The bank would choose the lowest of the two, either 60 percent of the value or 10 times the annual rent.

Interest rates were about one percent higher than standard owner-occupied mortgages. The mortgages had to be repaid on a straight-line basis over a maximum period of 20 years.

The Netherlands, until 2008, had three banks that specialised in buy-to-let mortgages. The other main banks such ABN AMRO, ING and Rabobank offered it as well, but not as their main product.

Reappearance of buy-to-let in 2015

The first bank to reintroduce buy-to-let mortgages in select Dutch cities was NIBC. They have a maximum loan-to-value of 70 percent, and their interest rate is about 4,5 percent (5- or 10-year fixed rate).

They can also do 50 percent LTV interest-only, without any repayment. The amount exceeding the 50 percent needs to be repaid on a 20-year basis.

The 4,5 percent interest rate is about 1,5 percent higher than that of standard mortgages. It was the first player on the market and therefore had a kind of monopoly.

Example buy-to-let mortgage investment

Purchase price house €300.000
Purchase costs €15.000
(transfer tax, notary, valuation, mortgage)  
Total costs €315.000
Market value (rented out) €280.000
Maximum mortgage (85%) €238.000
Own contribution €77.000
Monthly mortgage costs €1.025
(30 year annuity mortgage, 10 years fixed at 2,9%)  
Service costs €100
Rental income €1.500

The current situation

Since then, a number of other banks decided to begin offering buy-to-let mortgages as well. Now it's possible to get up to 85 percent loan-to-value, for around 3 percent (5- or 10-year fixed rate).

You do see the providers in the market getting more and more reluctant to provide an interest only component within the mortgage construction.

Restrictions for buy-to-let mortgages

You either need to have the Dutch nationality or you need to be registered in the Netherlands. Some banks, such as NIBC, require non-Dutch citizens to be registered in the Netherlands for a minimum of three years. Other banks don't have this requirement.

Your residence permit needs to be indefinite, which means that students with a temporary visa aren't eligible.

Knowledge migrants, for example, have a temporary residence permit with an indefinite character and are allowed to purchase buy-to-let properties.

These restrictions mean that foreigners, including EU citizens, who live abroad and who aren't registered in the Netherlands at this moment do not qualify for buy-to-let mortgages. Currently, their only option is buying with cash.

Increased flexibility expected

In Dutch there is a saying, Als er een schaap over de dam is, and NIBC was the first sheep over the dam in this case, setting the example for others.

It's reasonable to expect that every bank that follows will take it one step further each time. For example, NIBC offered 70 percent LTV and now there is a bank that offers 85 percent. NIBC offers 4,5 percent interest, now you can get 3 percent interest at other banks.

Another new development is that you are now allowed to make extra repayments, whereas in the past this was heavily penalised by banks.

Currently, you have to be registered in the Netherlands, as stated earlier, but soon there will probably be a bank that says you don't have to be. The market will likely evolve over time.

Looking forward

Whilst interest rates are historically low in the Netherlands, they're actually significantly higher than in other European countries. That gives mortgage lenders in the Netherlands a higher profit margin than their foreign counterparts (and themselves in pre-crisis years), but experts believe that interest rates won't be kept artificially higher for much longer.

In combination with the European Central Bank keeping interest low, this should mean that the interest rates for the Dutch housing market will continue at this level for the short-term, or perhaps even go down.

Nevertheless, after 2008, predicting future interest rates has been as easy as predicting the Dutch weather, as historical trends no longer apply.

Thinking about buying property in the Netherlands? Experts at Expat Buy2Let have many years of experience in helping expats find their perfect home or investment property in the Netherlands.

For more info visit Expat Buy2Let or fill in the form below.

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Henk Jansen


Henk Jansen

Henk Jansen was born and raised in Amsterdam by a Dutch father and an Irish mother. He is married to Ilona and has 2 children: Larissa and Roy. As a...

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