How does a construction deposit work?
Renovation and improvement
Anyone who buys a new house will also like to refurbish and/or arrange it completely according to their own insight. Especially if your next home is a bit older, you might want to give it a complete new look, modernize it, make it more sustainable and maybe even expand it. A construction deposit as part of your new mortgage can be a solution. Even if you want to renovate your current home, a construction deposit with a new mortgage is a great opportunity.
A construction deposit is a kind of account with the bank from which you can have the costs of renovation or improvement of the home paid. The great thing is that with a renovation, the value of your new home generally increases and you can therefore also get more mortgage. Sometimes the interest on your entire mortgage even goes down because your home is worth more as a result of the renovation.
A construction deposit can be used for adjustments to your house that are fixed to it. This is officially called ‘inextricably linked to the house’. For example, a kitchen, bathroom, toilet can all be part of your plans, but also paint, wallpaper, floors, electricity and even the landscaping of your garden. It works very easily: you have a receipt from the kitchen supplier or the contractor and you submit it to the bank. The bank then pays the contractor or supplier from the construction deposit.
You must include your ideas for adapting the house in a renovation specification (verbouwingsspecificatie). Request quotes from suppliers and contractors for the various jobs you want to carry out. Based on this, you draw up a global budget: this is the renovation specification.
Construction deposit for new-build homes
When you are puchasing a new-build home, a construction deposit (or as its called in Dutch bouwdepot) plays a huge role in managing the financing process. The construction deposit is used to pay the builder or contractor in the building process. After key milestones, for example finishing the foundation or roofing, are completed, the contractor will send invoices in which the bank releases funds from the construction deposit, to complete the payment.
Funds in the construction deposit can only be used for expenses that contribute to the value of the home and are specified in the agreement you sign. This includes labor costs, fixtures that are permanently installed in the property of costs like material. Temporary or non-fixed items such as appliances or furniture cannot be paid from the construction deposit.
The construction deposit usually has a maximum duration of 24 months during which you can claim payments. Interest is earned on the remaining balance at the same rate as your mortgage interest, but you only pay interest on the withdrawn amounts. If there is any leftover funds after the construction, these amounts are usually deducted from your mortgage balance, reducing the montly payments.
How do you submit a claim from your construction deposit?
The house is finally yours and thanks to your new mortgage with construction deposit, the renovation can start. Depending on the conditions, your construction deposit will exist for between six months and two years. You can finance the costs of your renovation until the agreed end date of the deposit. You submit claims to your bank.
To access the funds in your construction deposit, you usually submit a claim to your mortgage lender through an online portal.
- Collect and sumbit invoices
Submit your invoices for construction or renovation expenses through the online portal, (e.g. MijnAbnamro) where you can upload your invoices and payment documents. You typically select the option to file a ”declaration”. - Bank review and verification
The bank reviews the submitted declarations and ensures the costs are aligned with the approved construction plan. - Payment release
Once the submitted declarations are reviewed and approved, the bank disburses the amount either directly to you or to the supplier/contractor. This depends on the bank’s agreements and policies.
Download a renovation specification with which you can make an overview of your renovation plans. Our advisors will of course help you develop your ideas. Call 020 – 465 19 51 for the best start to your plans!
Mortgage and construction deposit details
A mortgage with construction deposit
To upgrade your home with the desired renovation, you can include the renovation costs in the mortgage. If you already have the money available for the renovation yourself, it can still be very wise to place it in a construction deposit. After all, the value of your home increases when you make that investment. With proof of the increase in value by an appraiser, the lender will assume the valuation after renovation. That can save interest because you may have a lower debt-market value. Our financial advisors will help you find a suitable mortgage with construction deposit that can be used as optimally as possible for your wishes. Feel free to call us for advice: 020-4651951.
Valuation before and after renovation
For the mortgage application with construction deposit at the bank, a valuation of the house before and after renovation is required. Our advisors will help you to request these valuations. Based on the increase in value after renovation, the bank makes a proposal for a mortgage with construction deposit.
How much to request a building fund account
Our advisors will discuss with you how much of the desired renovation can be financed at the bank. Due to the increased market values of homes, when refinancing your mortgage, this can amount often to 100% of the renovation costs. When purchasing another home, it concerns the increase in value compared to the purchase price that can be co-financed. Contact us, we will be happy to help you develop your plans.
Managing your construction deposit
Too much construction depot
If you still have money left in the construction account after all the work has been carried out, this amount will be repaid from your mortgage debt when the deposit is closed.
Too much construction depot
If the construction deposit is totally spent: it’s gone. So if you are short of funds after that, you will have to finance the shortfall yourself.
We are happy to advise you!
Call us on +31 (0)20-4651951 for a first introduction. Or fill in our contact form and we will contact you.
