[Update] New mortgage rules
Starting August 1, Dutch banks will no longer be allowed to extend mortgages for more than 110% of the actual value of the property being bought - that is 104% plus 6% property transfer tax. At the moment the limit is 125% of the foreclosure value of the property.
Nevertheless, starting June 15, property transfers will be subject to a 2% tax - a considerable reduction from the previous 6% - for a period of one year. Therefore, banks are expected to adjust the 110% to 106% but this has not been announced by all banks yet.
Does this mean that house buyers will not be able to borrow as much?
Yes, given the transfer tax reduction. Take the example of a house valued at 300.000 euros. Foreclosure value is around 88% of the market price (current conditions), say 264.000 euros. This means that one could borrow 330.000 euros (maximum). Based on the new rules, the new maximum is 318.000 euros (needs to be finalised).
However, there is no major difference to the old rule; it will remain possible to cover the actual costs of buying a home (property transfer tax, notary fees).
In addition, the new rules state that only 50% of a mortgage can be financed by an interest-only mortgage. At the moment, most banks will lend up to 80% on an interest payment-only basis.
What is a top mortgage?
A top mortgage is the one in which the mortgage holder has borrowed more than the value of the property. The lower the mortgage (compared with the property value), the bigger the discount mortgage providers are willing to give. This is because the risk that the property itself is worth less than the mortgage is reduced.
Can I still cover rebuilding work?
Yes, you can have your property valued before the rebuilding process but this should reflect the market value after the work has been completed. However, note that the mortgage cannot exceed 110% of the market value.
I have an interest-only loan. Shall I expect any changes?
Not at the moment since the new rules apply only to new mortgages. But it would be wise to work out how you are going to pay off the principal loan at the end of the mortgage period.
What is the reason for these changes?
Research by the financial services sector regulator AFM showed that banks had become much less likely to extend the so-called top mortgages, partly due to the economic crisis and partly due to regulatory attention. The new rules aim at making sure this more cautious approach continues in the long term.
Those who plan to spend less than 10 years in the Netherlands are advised to repay a large part of the loan. This reduces the risk of ending up in negative equity when the property is sold.
Chris van Maasdijk is an Expat Service Provider with more than 20 years of experience in the housing / mortgages area. For inquiries and / or remarks, feel free to comment below or join the free Expat Housing Seminar on June 21.