Buy-to-let mortgages now available in the Netherlands
The Finsens Group are financial advisers providing services and expert knowledge for expats in the areas of accounting, tax law, mortgages, asset management and pensions.
Expats often come to us asking whether it would be possible for them to purchase a rented property, as apartments and residences in the large Dutch cities are considered interesting investments.
Buying an apartment to lease out can often be a good investment as, in addition to rental income, an increase in property value can be expected as well.
Obviously you can purchase such properties with your own private cash, however taking out a mortgage has also recently become an option.
Requirements for a buy-to-let mortgage
On behalf of the expat community, we have investigated the requirements for a buy-to-let mortgage.
The following conditions apply:
› Expats must have spent at least three years living and working in the Netherlands.
› Minimum gross income should be 45.000 euros per year.
› EU nationality or residency conditions apply.
› Another significant detail is that private cash is required at all times. The bank will expect buyers to cover roughly 40 per cent of the purchase price with their own cash.
Provided the above conditions are met, a mortgage can be requested. The bank may set a few more conditions regarding (the rental of) the apartment. For instance, a long-term occupation needs to be the case - Airbnb or any other short-term rental is not allowed.
Another thing to note is that banks will only finance apartments and residences located in large cities due to the high demand for rental properties and the minor risk of vacancy.
For up to 50 per cent of the property value the type of mortgage can be an interest-only mortgage (with a maximum period of 30 years).
If the mortgage is higher than 50 per cent of property value then this part of the mortgage will need to be repaid on a straight-line basis within 10 years. Additionally, the rental income needs to exceed interest and repayments in the first year.
The tax consequences for rental properties are as follows: for the value of the apartment (minus the mortgage) a 1,2 per cent tax levy is due annually, falling under the Box 3 levy in the annual income tax return.
An example of the buy-to-let mortgage
Let us clarify this mortgage structure with an example:
› Initial costs
A client buys an apartment with a purchase price of 260.000 euros plus additional costs. The total costs amount to 270.000 euros. The apartment is not rented out yet.
› Property valuation
The bank requires a valuation report and the value of the apartment when rented out is 245.000 euros.
Based on this valuation the maximum mortgage is 171.500 euros (70 per cent of property value) and the client has to provide approximately 100.000 euros of his or her own money.
The bank then checks the relation between the estimated rent and the finance costs.
› Calculate net rent
The rent is estimated at 15.500 euros per year. The costs for the landlord are estimated at 2.500 euros annually so net rent will be 13.000 euros per year. In relation to the net rent, the yearly mortgage (re)payments should not exceed 10.400 euros (net rent divided by 1,25).
› Compare rent with costs
Assuming an interest rate of 4 per cent, a mortgage of 70 per cent of the market value would be too high to meet the above criteria, but a mortgage of 65 per cent of the market value would qualify.
› Revise the financial structure
To conclude, the appropriate financial structure for a property with total costs of 270.000 euros would be a mortgage of 159.000 euros and a down payment of 111.000 euros.
A worthwhile investment
Whether a buy-to-let rental property is a good investment for you depends on if you can meet the mortgage conditions, how much private cash you have available and if you are prepared for the financial management required.
If you are prepared to invest over the long term, a buy-to-let apartment can often turn out to be quite a profitable venture.