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.
What about taxes and costs?
Owning a second home is seen as capital in The Netherlands. Based on the vacant value ratio (leegwaarderatio) of the property, the fictive return is calculated (6.17% in 2023). You need to pay tax over this fictive return (32% in 2023).
When having a property with a WOZ-value of 250.000,- and annual rental income of 12.500,-, your capital is €237.500. The fictive return over this capital is 14.654,-. The tax you need to pay will be 4.690,-. You do not have to pay tax over the rental income you receive.
Keep in mind that with an investment like this, your money transforms into your second house and can only be retrieved again when the second property is sold. Based on the actual market values, you will gain a profit or will suffer a loss on your investment.
Major repairs and major maintenance are at the expense of the lessor, such as exterior painting or replacing pipes. It is therefore wise to set aside part of the rental income for this. Often 15% of the rental price is recommended.
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.