TAKING OUT A MORTGAGE IN THE NETHERLANDS

If you have decided to buy a house in the Netherlands, you will have to devote some thought to taking out a mortgage. There are several different types of Dutch mortgage to choose from, all of which have their own pros and cons. Because most Dutch mortgages have a duration of 30 years it is important to choose wisely! There are many factors to take into account when making your decision, all of which we will discuss on this page. Read on to learn which mortgages are available to expats in NL, and for advice on which one will best serve you.

There are three principal types of mortgages in the Netherlands. The first two are:

1. Mortgages with Straight Line Redemption

• The most distinctive quality of this mortgage is that it is a straight line mortgage
• This means that the loan is repaid yearly, in equal installments
• As a result of the repayments, the amount of interest payable diminishes every year
• Because of this, the straight line redemption mortgage is best suited to borrowers who cannot fully benefit from tax relief on their interest payments

2. Annuity Mortgages

• Annuity mortgages are chiefly distinguished by the fact that the yearly total of their redemption and interest payments remains the same for their duration
• Whilst the total remains the same, the ratio of interest to redemption changes over the years
• Owing to this balance between interest and redemption, annuity mortgages do not have straight line redemption
• For the first few years after this mortgage has been taken out, the amount paid by the borrower will mostly consist of interest payments
• Hence, the borrowers will be given a lot of tax relief during this period
• An annuity mortgage is consequently ideal for people who feel they need to have a lot of tax relief during the first years of taking out their mortgage
• The borrowers should, however, expect to have an income in later years that is high enough to make the redemption payments that do not qualify for tax relief

We will go into the third type of Dutch mortgage, a little later on.

A ‘National mortgage guarantee‘ is a Dutch system, which ensures that a borrower’s mortgage will be paid off in full:

• The ‘National mortgage guarantee’ is called the ‘Nationale Hypotheek Garantie’ in Dutch, and referred to as the NHG
• NHG is provided by the ‘Homeowners’ Guarantee Fund‘ in the Netherlands
• This is called the ‘Stichting Waarborgfonds Eigen Woningen‘ in Dutch, and referred to as ‘WEW’
• Borrowers have to pay the Homeowners’ Guarantee Fund a one-time fee, in return for an NHG
• If borrowers cannot meet their mortgage payments, the Homeowners’ Guarantee Fund will make them on their behalf
• Mortgage providers benefit from this system as well, because they are guaranteed payment
• In return for this guarantee, mortgage providers offer their borrowers a reduction in their mortgage interest
• This reduction could be anywhere between 0.3 and 0.7%
  
• NHG mortgage loans can be as much as € 405,000 or €429.300 if borrowers have taken special measures to reduce their energy expenses
• For further information on the conditions borrowers must meet to qualify for these loans, we advise you to consult a tax advisor

Below, we have listed examples of the third type of mortgage available in the Netherlands. Borrowers who take out one of the following types of mortgage will not be able to deduct their interest payments from their taxable income. For this reason, these forms of mortgage tend not to be offered in the Netherlands anymore. However, if you have already taken out one of these mortgages, and you lower your mortgage interest or change mortgage providers, you can keep it.

1. Endowment Mortgages

• The Dutch refer to an endowment mortgage as a ‘Levenhypotheek‘
• No repayments are made during the term of an endowment mortgage
• Instead, the whole loan is redeemed in a single lump sum, at the end of the term
• The redemption is financed by means of a with-profits endowment policy
• This policy matures on the expiry date of the mortgage

2. Special Endowment Mortgages

• In Dutch, a special endowment mortgage is called a ‘Spaarhypotheek‘
• This is a variation on the Endowment Mortgage
• Like an endowment mortgage, it calls for a lump-sum redemption of the mortgage loan at the end of the term
• The distinguishing feature of this mortgage is that the interest rate on its loan is exactly the same as the gross rate of return on the investment, under the endowment policy

Are These Mortgages Suitable for Expats?

The short answer is: no!

There are a number of reasons why neither an endowment mortgage, nor a special endowment mortgage is suitable for an expatriate living in the Netherlands:

• Generally speaking, mortgages that are linked to insurances are no longer taken out, especially not by expats
• Often, an expat will move away from the Netherlands within seven years of relocating to Holland
• Upon leaving, he or she might decide to surrender his of her endowment policy
• Only the total of premiums paid will be returned to an expat in this situation
• The reason why there will be hardly any investment return, is that Dutch insurance companies write off all policy costs during the first years after the insurance was taken out
• Hence, if you surrender within this ‘write-off period’, your investment return will only be marginal

What should expats do instead?

• Most expats opt for either an annuity or straight line mortgage
• They might accrue the savings to pay off their mortgage through a savings account, a special ‘Own Home Bank Savings Account’, or a SEW. SEW is explained in the paragraph below
• Otherwise, expats might opt for an investment mortgage
• Redemption-free mortgages are also a reasonably popular option

3. ‘Banksparen’ Mortgages

• These mortgages were introduced eight years ago in the Netherlands
• A ‘SEW‘ is a common type of banksparen mortgage
• Instead of an endowment policy, a special savings or investment account is linked to the mortgage
• Borrowers can only take out this kind of mortgage on immovable property and a related mortgage
• Savings must be used for paying off this mortgage at the end of its term
• Payments must have been made for a period of at least 15 years before this
• The highest payment may never amount to more than ten times the amount of the previous payment

4. Interest-Only Mortgages

• No redemptions take place during the term of an interest-only mortgage
• It is usually part of an ordinary endowment mortgage
• Interest only mortgages can only be taken out for a maximum of 50% of the value of the property, or of the purchase price

Whether or not you are likely to move to a different country again has a significant bearing on the type of mortgage you should opt for. Your tax status is a huge determining factor as well since a mortgage is, in essence, a tax-driven product. In the Netherlands, there are two major tax issues with which an expatriate is faced, that affect their choice of mortgage:

The 30%-Ruling

• We recommend that you take a look at our page on the 30%-ruling, for a more detailed explanation of how it affects expats in the Netherlands
• The 30% ruling allows an employer to grant an employee a tax-free allowance of up to 30% of his total remuneration
• This is intended to help expat employees to cover the expenses they incur as a result of being sent on placement abroad, which they would not have incurred had they never been posted overseas
• Housing-related expenses are an example this type of expense
• Under the 30% ruling, an expat’s total gross remuneration will be reduced by 30%
• In return he or she will receive a 30% tax-free allowance
• Expats should enjoy a higher net salary under the 30%-ruling
• When applying for the 30%-ruling, an expat employee may choose to have resident or partial non-resident tax status

Partial Non-Resident Tax Status

• There are specific sources on which expatriates who are classified as ‘partial non-residents’ owe taxes on their income 
• These sources are outlined in the Dutch income tax legislation
• Partial non-residents are also entitled to tax deductions
• For partial non-residents these deductions could be made on specific income sources, alimony payments and mortgage interest payments for their principal place of residence
• Contrary to resident taxpayers, partial non-residents will not be taxed on their net wealth in the Netherlands
• Net wealth, in this case, refers to assets minus liabilities, taxed at 1.2%

Mortgages for Partial Non-Residents in NL

• Partial non-residents would be wise to choose a mortgage that has tax-deductible interest payments
• They would also benefit from a mortgage through which the investment income is not taxed
• Luckily, a special type of mortgage exists in the Netherlands, which fits these requirements: a redemption-free mortgage, combined with a compulsory savings scheme
• There are no repayments on this kind of mortgage. Consequently, borrowers can fully benefit from the tax-deductibility of their interest payments
• Because the investment income on the borrower’s savings scheme is not taxed, the borrower can use this to generate capital
• This capital can be used to pay off all or part of the mortgage, once your partial non-resident tax status ceases to apply to you
• Because your savings will not be taxed if you take out this mortgage it is better to save than to make repayments
• This is because, the after-tax effect of your repayments will usually be lower than the tax-free effect of your savings
• It follows that it is advisable to borrow as much as possible, provided that you can demonstrate that the funds will be used for the acquisition of immovable property in the Netherlands
• Partial non-resident taxpayers benefit from the 30%-ruling. So, this allows them to make savings as well

Resident Tax Status

• Unless an expatriate chooses to be treated as a partial non-resident taxpayer, he or she will be viewed as a resident of the Netherlands
• As a resident of the Netherlands, he or she will be taxed as any ordinary Dutch citizen
• Like partial non-resident taxpayers, resident taxpayers are only entitled to mortgage interest relief on their principal place of residence
• The value of any other residences he or she owns is subject to wealth tax
• There is a chance that this could also apply to his or her properties abroad. Whether or not it does depends on whether the Netherlands, and the country in which the expat’s foreign property is located, have both entered into a tax treaty

Mortgages for Expats With Resident Status in NL

• If, as an expat and a resident taxpayer, you are benefiting from the 30%-ruling, you will have a high net salary
• This will enable you to make repayments
• At the same time, income from your wealth will be tax-free
• For this reason, barring special circumstances, repaying your loan will usually not be tax-efficient