Rent out your house
Your next move
When you are looking for your next house, and you don’t need the equity of this house to buy the new one. You might consider keeping your current one to rent out. A way to gain return of your capital.
When keeping your current house for rental, you often need to refinance your mortgage to a rental mortgage. This is often because the mortgage provider does not allow you to rent out with the current mortgage conditions. We are happy to explain you what aspects you should consider.
Buy-to-let mortgage example
When taking out a buy-to-let mortgage, the maximum amount provided by the mortgage provider is based on the value of the property in rented condition. This is usually lower than the market value, because selling the property with a protected tenant is less profitable.
Your current house has a market value of 350.000,- and an estimated rented condition value of 300.000,-. Mortgage providers will not finance the full amount, but go up to a maximum of 70% (to 90%) of the value in rented condition. The maximum is therefore €210.000.
In case your remaining mortgage debt, plus financing costs (including among others mortgage advice, notary and appraiser (~7.000,-)), are higher than this amount, you will need to make a down payment with your own savings.
Lower mortgage at next house
When buying your next house and keeping your current, it is important to realize that you cannot make use of your equity to buy the next one. The maximum mortgage is fully depending on your income and the market value of your new house. The purchasing costs need to be paid with own savings.
In order to be eligible for interest tax deduction (hypotheekrenteaftrek, box 1), the tax office demands that you use your equity when moving to your next house. Since you are not able to do this when keeping your house for rental, this fictive equity will be moved to box 3 and is therefore not deductible any more. In order to determine the equity, the tax office keeps the WOZ-value into account.
Due to the fact that a box 3 loan is tested heavier than a box 1 loan. The maximum mortgage you can apply for will be lower.
What you should take into account
Second mortgage or Rental mortgage
When a buy-to-let mortgage is necessary, there are two options. Either a buy-to-let mortgage or an investment mortgage.
The buy-to-let mortgage could be taken out at a regular bank, who has special mortgages that allow you to rent out the property. The fact that the house is going to be rented out means for the bank that there is more risk on the loan. That is why rental mortgages often have higher interest rates.
Banks need to comply with Dutch legislation (GHF) and therefore the maximum mortgage is based on both income as property value. The mortgage costs need to fit next to your current housing costs.
The investment mortgage could be taken out at an investment party that mainly looks at the investment itself, rather than sufficient personal income.
A combination of (expected) rental income and property value determine the maximum loan. Your ability as future property investor needs to be proved (financially). The interest of an investment mortgage is often higher than buy-to-let mortgages.
Frequently asked questions
Major repairs and major maintenance are the responsibility of the landlord, such as exterior painting or replacing pipes. It is therefore wise to set aside a portion of the rental income for this purpose. Often, 15% of the rental price is recommended.
Ownership of a second home is considered as an asset. A notional yield is calculated on the asset value of the property (based on the so-called 'leegwaarderatio', or 'vacancy rate', which is 6.17% in 2023). Tax is then levied on this notional yield (at a rate of 32% in 2023).
To calculate the tax payable, you can follow these steps:
Find the WOZ (real estate valuation) value on the notice issued by the municipality. The WOZ value can usually also be found online via the WOZ valuation portal.
Calculate the annual rental value by multiplying the monthly rental value at the beginning of the calendar year by 12.
For example, if the monthly rental value at the beginning of the year is €600, then the annual rental value is (12 x €600) = €7,200.
Calculate the percentage that reflects the ratio of the annual rental value to the WOZ value by dividing the annual rental value by the WOZ value and then multiplying by 100.
For example, if the WOZ value is €250,000 and the annual rental value is €7,200, then the percentage is (€7,200 / €250,000) x 100 = 2.88%.
Find the result from step 3 in the table for the relevant year.
For example, if the percentage falls between 2% and 3%, the vacancy rate is 84% (in 2023).
Calculate the value of the rented property by multiplying the WOZ value by the vacancy rate.
For example, if the vacancy rate is 84% and the WOZ value is €250,000, then the value of the rented property is €210,000.
A notional yield is then calculated on the value of the rented property (6.17% in 2023). Tax is then levied on this notional yield (at a rate of 32% in 2023).
For a property with a WOZ value of €250,000 and annual rental income of €7,200, the asset value for tax purposes is determined by the Tax Authority to be €210,000. The notional yield is €12,957 (€210,000 x 6.17%). The tax payable is €4,146 (€12,957 x 32%). The rental income received is not subject to tax.
No, the rental incomes you receive are not taxed. However, owning a second home is seen as wealth. You pay taxes on this in box 3. See also: "How much tax do I pay for my rental property".
It may seem attractive to buy a second home for rental as an alternative to the limited returns that banks currently offer on savings. However, it is important to emphasize that buying a second home depends on your personal situation and that it is always wise to seek professional advice from our advisors.
In addition, it is essential to remember that having a second home means that your money is tied up in bricks and is only available through sale or mortgage increase. It is therefore crucial to always maintain a financial buffer for unforeseen expenses. Also, consider the possible fluctuations in market prices as this can affect the value of your investment. Again, depending on your personal situation, professional advice is always necessary.
The Dutch point system
The Dutch government differentiates two types of rental in The Netherlands: Social housing and Private housing (free sector).
The Rent Liberalisation Threshold (Huurliberalisatiegrens) separates the two. Based on a points-based system, the housing quality and therewith the maximum price for renting your house will be determined. In case of social housing, the maximum rent is based on the number of points the house attains. The current threshold and therefore maximum (in 2023) is: €808.06.
In case of private housing, which means the number of points have exceeded the threshold, the sector has been liberalised. There is more freedom when it comes to maximum rent and rental conditions. There is no point system to determine the maximum price. An appraiser will determine a reasonable rent, which might be used for the mortgage application.