Investing in Dutch real estate and buy-to-let mortgages
Last updated September 2023- Buying a property to rent out was an interesting opportunity in the past. Over the last two years regulations in The Netherlands have been introduced to try to stimulate personal home ownership rather than investment properties. This in combination with current interest rates for buy to let mortgages have made it less interesting or not possible for many clients. In some specific cases clients still want a buy to let mortgage or decide to hold on to their investment property. Our role as an independent mortgage advisor is to show you what is possible.
So what is a buy-to-let mortgage?
Let’s explain buy-to-let-mortgage. With a normal mortgage you agree to specific terms set out by banks. You may not rent out your property. Reason for this is that your property will be valued less with a tenant in it and they have tenant rights to protect them. A bank doesn’t want to your property to be valued less as this is a risk towards them.
A buy-to-let mortgage is specifically designed for investors that want to buy a property to rent out. You will receive a rental income from your tenants and on top of that the property value could increase over time. On the other side you will have to repay your buy-to-let mortgage and pay interest over the money you will borrow.
What are the requirements for buy-to-let mortgages?
The rules around buy-to-let mortgages are similar to those around regular Dutch mortgages, but there are some key differences:
- Interest rates on buy-to-let mortgages are approximately 1% higher compared to regular mortgages
- With a buy-to-let mortgage the bank requires a down payment of approximately 25% of the property’s rented state value (it can vary between 20-40%).
- Stricter affordability checks compared to a regular mortgage – the expected rental income should also always exceed the buy to let mortgage costs
- Most buy-to-let mortgages are on a full repayment scheme, but in some cases (partial) interest only is also an option
- There are far less banks / mortgage vendors offering buy-to-let mortgages then regular mortgages
- Higher fees for the valuation and mortgage advice
Any other ways to invest in real estate?
Yes. If you already own a home you could also check how much equity you have in it. You need to know the current value and subtract the outstanding mortgage amount. You could then increase your mortgage (if also possible on your income) with your current bank or choose to increase and refinance with another party. In all cases this way your interest will be lower than with a buy-to-let mortgage.
What about tax?
In the Netherlands rental properties are considered financial assets, which is taxed in Box 3. Therefor the rental income is not taxed in Box 1. There are different brackets in Box 3, so depending on how much financial assets you have you will pay a certain percentage.
Since January 2021 the transfer tax (stamp duty) on investment properties increased from 2% to 10,4%. This tax is on top of the 25% down payment.
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