A mortgage in the Netherlands

Buying a home in the Netherlands can be a confusing process, especially if you don’t read Dutch. Bank policies and tax rules are quite complicated and finding good quality English-language information on getting a mortgage in the Netherlands is not easy.

This page outlines some important aspects of mortgages in the Netherlands. It is our aim to provide a guide to the rules, regulations and quirks that you may encounter when trying to finance a home in the Netherlands. Although we have done our utmost to gather recent and accurate information, we cannot pretend to be comprehensive. You should always consult a financial advisor to get an assessment of your own specific situation before making far-reaching financial decisions.

Finding out how much you can borrow

The best way to get an indication of how much you can borrow is to have a preliminary mortgage appointment  with a mortgage advisor. You will be asked to provide some information about your financial situation, including your income and that of your partner if you are buying a house together. Additionally, you will probably have to provide an indicative value of the property you are planning to buy. A first consultation is generally free. For any advice beyond that a mortgage advisor is legally required to charge a fee.

Your maximum mortgage is generally either three to five times your gross annual income or 101% of the property value, depending on which is the lowest. As of 2017, the maximum mortgage is legally limited to 101% of the value of a house. Over the coming years, this will be reduced to 100% in annual steps of 1%. Broadly speaking, SNS Bank does not encourage borrowing the maximum loan sum.

Before you make a bid on a house, you should have a more precise calculation of the mortgage you want, in the shape of a detailed mortgage advice report from the bank you have selected. See ‘The process of getting your mortgage ’ for more details.

Deposit

In contrast to banks in neighbouring countries Belgium and Germany, banks in the Netherlands traditionally did not require a deposit. However, as costs related to the transfer of a property are traditionally paid by the buyer in the Netherlands (this is referred to as ‘kosten koper’ or ‘k.k.’) the total of purchase price and purchase costs often exceeds 101% of the property value. Under the new law, you cannot finance this with your mortgage and are therefore required to pay these costs out-of-pocket.

Most banks add an interest rate surcharge to mortgages that exceed a certain percentage of the property value (typically 60%). So if you have savings that you can use for buying your home, this may reduce your interest rate. Your financial advisor will be able to calculate the most favourable scenario for you.

Mortgage types

The most common types of mortgage in the Netherlands are annuity mortgages and linear mortgages. Determining which is best for your particular circumstances is a job for a specialist, so please consult your financial advisor.

Annuity

Mortgages with annuity payments are the most common form of mortgage in the Netherlands. An annuity mortgage is a mortgage that has fixed payments for the duration of the fixed-interest period. In the beginning, these payments are largely made up of interest, with a small repayment. As the debt decreases, so does the interest part of the payment, leaving a larger monthly amount for repaying the debt. As a result, the debt will quickly decrease towards the end of the duration.

Linear

A linear mortgage combines non-variable monthly repayments of the debt with decreasing monthly interest payments As a result a linear mortgage has higher initial payments than an annuity mortgage. This results in a faster reduction of the debt.

Fixed or variable interest

Once you have decided on a mortgage type, you have to choose between fixed or variable interest rates. A variable interest rate will fluctuate in accordance with the current rate of your mortgage lender. A fixed rate will remain the same for a set period of time.

While variable interest rates may be lower than rates on mortgages with a longer fixed interest period, they come with a risk. When rates go down, variable rates are favourable, as your monthly payments will immediately decrease. When rates go up, however, your payment obligations will also go up. To manage this risk, many homeowners opt for a fixed interest period of several years. While interest rates for these mortgages are generally higher, they provide the certainty of fixed monthly costs. If, however, you are willing and able to deal with a possible increase of your monthly payments, a variable interest rate mortgage can have a lower interest rate. If interest rates fall steeply, homeowners with long fixed interest periods could also take advantage of this by refinancing their mortgages. See ‘Refinancing your mortgage or switching to another lender’.

The process of getting your mortgage

The steps toward getting a mortgage in the Netherlands are as follows:

  • When you start looking for a home, you consult a mortgage advisor about the amount you will be able to borrow. You will be required to provide certain documents so your advisor can make an accurate calculation. This first consultation is usually free, but be sure to ask about any costs when making the appointment.
  • Once you are ready to start bidding on the house you want, you consult your advisor once more, choosing a mortgage type and filling in the details of your mortgage. At this point, you will be charged an advice fee and your advisor will provide you with a personal mortgage advice report. In order to have a comprehensive overview, you may have to provide additional documents and information.
  • When you agree on price and conditions with the seller, you sign a purchase agreement (koopcontract). If at all possible, this agreement should contain a mortgage contingency, a resolutive condition that gives you several weeks to get a mortgage offer: if you fail to obtain the offer, the contract becomes void. If you don’t agree on such a condition, you will be obliged to buy the house, even if no one will lend you the money to do so. In a seller’s market, such as the larger cities, sellers may resist including such a resolutive clause. If this is the case, you should consult with your financial advisor before bidding. Under Dutch law you also have the right to repeal the sale without stating a reason within 3 days after signing your purchase agreement. Failure to comply with the purchase agreement will make you liable to pay a non-compliance penalty, typically 10% of the agreed price.
  • Next, an independent appraiser has to appraise the house. The appraisal report may influence your maximum mortgage amount and your interest rate.
  • Based on the appraisal, your bank can provide you with a mortgage offer. They will also perform formal checks on your credit status. To avoid problems at this stage, it is very important to be honest and exhaustive in providing whatever information they need. Once you get your offer, you can be sure that the bank is willing to loan you the money you need to buy the house.
  • In the Netherlands mortgages are registered in a mortgage register by a civil law notary. Usually, this is done directly after the notary transfers ownership of the house from the seller to you. When the transfer deed is signed, the notary will go over the mortgage deed with you. Once you have signed both the transfer deed and the mortgage deed, both the sale and the mortgage are final and you are the proud owner of a home in the Netherlands!

As mentioned earlier, you can arrange a mortgage via either a bank advisor or a mortgage broker. In the past, mortgage brokers were often criticized for selling products with the highest commissions instead of products that were best for their clients. Nowadays, mortgage lenders are no longer allowed to pay commissions to brokers. Instead, you pay a fixed fee for the mortgage advice. These fees may vary so it pays to shop around.

Additional fees and costs

All in all, additional fees and taxes for buying a house could add up to as much as 6% of the purchase price. The following list may not be exhaustive, but serves as a guideline:

  • Mortgage advice fee
  • Mortgage processing costs
  • Notary fee
  • Fees for the Land Registry
  • Cost of appraisal
  • Cost of applying for national mortgage guarantee (NHG)
  • Costs and fees for early repayment of previous mortgage
  • Estate agent fee
  • 2% transfer tax
  • Cost of interpreter or translation of documents

Required insurance

Life insurance

Most mortgage lenders require that you - and your spouse, if you are buying a home together - have some sort of life insurance. Requirements differ from lender to lender. In general, the insurance policy does not have to cover the entire mortgage. Therefore, if you already have life insurance, you may already be sufficiently covered.

Home hazard insurance

In the Netherlands the hazard insurance that covers damage to your house (opstalverzekering) is generally arranged separately from the insurance that covers the contents of your house (inboedelverzekering). Although you will probably need both, the opstalverzekering is the only one required by mortgage lenders, as it serves to protect their investment.

The national mortgage guarantee system (NHG)

The Dutch government guarantees repayment of smaller mortgages. This system is called Nationale Hypotheek Garantie (NHG), or national mortgage guarantee. Should you be unable to repay your loan, the NHG will ensure repayment, if certain conditions are met. NHG mortgages have to be under a certain threshold (the exact amount is subject to yearly reevaluation) and must comply with several other conditions. NHG-mortgages hold limited risks for the lender, so the interest rates will be up to 0.7% lower.

The registration fee for a mortgage guarantee is 1% of the sum borrowed, payable to your mortgage supplier the day your notary finalizes your mortgage.

Paying off your mortgage: beware of extra costs

Making extra payments

You may have some savings that you want to use to repay part of your mortgage, on top of your regular payment schedule. This is generally possible within limits. Most banks limit extra repayments to 10% of the total loan per year. Some providers have a yearly limit of 20% per year. If you repay more than that in a single year, you may incur extra costs.

Most banks have additional rules about when, how and how much you can repay:

  • Some banks allow extra monthly payments, while others only allow you to make one payment per year
  • There may also be a minimum payment amount

There are, however, several points in your mortgage duration at which you are allowed to repay part of your mortgage without any extra costs. These points are described below:

Repaying in full

If you sell or refinance your house, you repay the debt that is left in your mortgage in one go. This will generate extra costs for your lender. If you are refinancing your mortgage (i.e. paying off your original mortgage with another, cheaper, one. See below for more information about this) you will have to pay these extra costs. If you are selling your property, you will generally not have to pay any extra costs. Your lender may, however, charge an administrative fee for handling the premature end of your mortgage. There will also be a notary fee for removing the mortgage from the Land Registry

Generally speaking, there will be no extra costs for repaying your mortgage in full at the following times:

  • At the end of your fixed interest period
  • If you have a variable-interest mortgage
  • On the death of one of the mortgage holders
  • If you switch to a higher interest rate at the same bank

The exact conditions for repaying your mortgage vary from bank to bank, so be sure to consult a mortgage advisor before deciding how to go about this.

Refinancing your mortgage or taking out a replacement mortgage with another lender

If you have a fixed-interest mortgage and interest rates are falling, it could be profitable to repay your existing mortgage by taking out a new one. This is called mortgage refinancing. You can refinance your mortgage via the same lender or via a different one. Costs and procedures may differ for these two scenarios.

As your mortgage contract will then be finished before the end of its duration, there may be extra costs (See ‘Paying off your mortgage: beware of extra costs’). Even if you take out a replacement mortgage via your existing mortgage provider, there may be extra costs of up to 3 times your yearly interest costs, as well as processing costs.

If you switch to another mortgage provider your new mortgage will have to be registered by a notary, for which you will need to pay additional fees. All these costs should be taken into account when you are considering refinancing your mortgage in order to determine whether the difference in interest rate will compensate for the additional costs. It is therefore wise to make sure you are fully informed before deciding to refinance your mortgage.

Some banks, like SNS, offer a ‘mortgage maintenance program’ with a yearly evaluation of your mortgage. This evaluation can touch on an array of aspects and include the possible benefits of refinancing your mortgage.

Special requirements and laws for expats

Mortgage suppliers can differ in the requirements they have for accepting expats as mortgage holders. It is advisable for expats to enquire about any special requirements. Requirements also differ based on whether you are an EU citizen or not.

EU citizens

Generally speaking, the following conditions apply to non-Dutch EU citizens. As mentioned earlier, these vary from bank to bank so this list is only an indication of the possible conditions of your bank:

  • You have worked in the Netherlands for a certain period of time (typically 6 months)
  • You have a residence permit
  • Your employee trial period has been completed
  • You are either a permanent employee or your employer has signed a statement stating the intent to prolong your temporary contract
  • You are buying the property to serve as your primary residence

Some banks may also limit the percentage of the property value they are willing to finance and/or require a deposit.

Non-EU citizens

Non-EU citizens are usually subject to the same conditions as EU citizens, but may face stricter scrutiny by their mortgage provider. If you are a non-EU citizen, you may also be asked to prove that your residence permit is eligible for extension.

SNS does not supply mortgages to anyone with an income in other currencies than euro. In addition, SNS does not cater for mortgage clients who have a place of residence outside the eurozone.

Mortgage tax relief

Mortgage interest is tax-deductible in the Netherlands under certain circumstances. This is only applicable if you are both living and working in the Netherlands. If you have a home in another country, or generate part of your income outside the Netherlands, different rules may apply.

Mortgage tax relief greatly influences the amount borrowed for Dutch mortgages as it can reduce the net monthly costs of your mortgage by more than a third. Recent changes in legislation have, however, limited mortgage tax relief. Dutch residents can deduct the interest paid on a mortgage loan from their income before tax under the following conditions:

  • The total mortgage loan is spent entirely on buying, improving or maintaining the house that is your main residence.
  • In order to stimulate repayment of mortgages, the period of tax deductibility has been limited to 30 years. For example, interest you pay on a mortgage closed in 2016 is only tax-deductible until 2046.
  • If you sell your property at a profit and buy a new house within the next three years you are required to use the capital gained from the sale for the purchase of this new property.
  • You must repay your loan (at least) in annuities within 360 months (30 years). This must be specifically agreed in the mortgage and the Dutch Tax and Customs Administration (Belastingdienst) will check the payments made every year when you fill out your tax returns. A stricter payment regime, such as linear repayment, is also allowed.

In addition, measures have been taken to gradually lower tax relief. In the Dutch progressive tax system, people with higher incomes benefit more from mortgage tax relief than those with lower incomes. In 2014 the Dutch government started reducing the rate at which interest can be deducted in the highest tax bracket by 0.5% per year. As of January 1st, 2017, mortgage holders in the highest tax bracket are able to deduct mortgage interest costs from their taxed income at a rate of 50%. By 2042, this will be reduced to 38%.

As there has recently been, and will probably continue to be, a lot of political debate about mortgage tax relief, you should always consult a financial advisor concerning the latest changes in policy before you commit to a mortgage.

Deductible costs

Some of the costs of buying a house are also tax deductible, such as:

  • Mortgage advice fee
  • Mortgage processing costs
  • Notary fee for mortgage registration
  • Cost of appraisal
  • Cost of applying for national mortgage guarantee (NHG)
  • Costs and fees for early repayment of a previous mortgage
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