Opportunities to take out a buy-to-let mortgage
Apartments and residencies are considered interesting investments and expats often contact us to ask if it is possible for them to buy a property to let. In the beginning expats were only eligible for a buy-to-let mortgage after residing in the Netherlands for at least three years. There are new parties that have less demanding rules for expats looking for a buy-to-let mortgage.
A good investment
Buying property to let out is a good investment because of the rental income, but also because an increase in property value can be expected in the future. The Dutch housing market has an excellent reputation. If you have sufficient funds you can buy property with your own money. Another option is to leverage a large part of the purchase price and use your own funds to finance the rest of the purchase. Normally the annual rental value exceeds the cost of a mortgage, as the largest part of a mortgage is interest-only.
Requirements for a buy-to-let mortgage
The following conditions apply:
- Expats are required to reside in the Netherlands on a non-temporary basis, for example as a knowledge migrant (highly skilled migrant) or for an indefinite period of time.
- Box 1 income, no minimum gross income.
- It is possible to finance up to 80 percent loan-to-value, with a maximum of 60 percent interest only.
- A mortgage can be requested when the conditions above are met. The buy-to-let mortgage can only be used for long-term rental. Airbnb and any other short-term rental constructions are not allowed.
- The bank has a policy that allows financing houses in the larger cities only.
There is an interest only mortgage with a maximum duration of 30 years, it is for when you finance up to 60 percent of the property value. If you need to finance more than 60 percent the remainder must consist of a linear mortgage. This type needs to be repaid on a straight-line basis within 10 years. This mortgage can be repaid in part or full anytime within 10 years without a fine.
Additionally, the rental income needs to exceed the interest and repayment based on a ratio of 1.25. This means that the rental value must be 1.25 times the sum of the interest and repayment of the first year. If you already receive income by letting out property this ratio decreases to 1.05.
In the Netherlands rental properties are considered your capital, which is taxed in Box 3. The rent you receive is not taxed directly. There are different brackets in this box depending on the total value of your possessions. You can find the tax levy concerning your total capital for 2018 down below.
You need to add additional closing costs, such as the transfer tax and notary costs, to the purchase price of your apartment. When the property costs €290.000 the total cost will be approximately €315.000 and at that point the apartment is not out for rent yet.
Real estate appraisal
The bank requires a valuation report and the value of the apartment for rent is €255.000. you can request up to 80 percent of the property value which means that the maximum mortgage you can request is €204.000. You need €71.000 in savings.
Calculate net rent
The rent is estimated €15.500 a year. The costs of a landlord are estimated at €2.500 annually which means that the net rent will come to €13.000 a year. In relation to the net rent the first year mortgage interest and repayment should not exceed €10.400. this is the net rent divided by the ratio of 1.25 or 1.05, depending on if you already rent out property.
Rent compared with costs
Assuming the interest rate is 4,5 percent, a mortgage of 80 percent of the market value is too high to meet the 1.25 ratio. This means that you have to slightly lower the mortgage. However, this example meets the 1.05 criteria, since a maximum mortgage cost of €12.380 would be possible. In this case you already need to rent out property.
Revise the financial structure
If this is your first buy-to-let apartment the appropriate financial structure for a property with a total cost of €275.000 would be: a mortgage of €191.250 (75 percent loan-to-value) and a contribution of €12.380 from your own funds.
A worthwhile investment
Whether buying property to let is a good investment depends on whether you can meet the mortgage conditions, how much savings you have available and if you are prepared to take on the financial management that is required.
If you are prepared to invest for the long term, a buy-to-let apartment can often turn out to be quite a profitable venture.
To determine your budget and later on in the mortgage application we need the following information:
- Information about you personally
- Information about existing mortgage(s) and personal loans
- Information about the property you wish to let
- Information to substantiate your financial position
Required information about you personally
- A copy of your passport
- A copy of your permit of residence
Required information about existing mortgage(s) and or/personal loan(s)
- A copy of the current loan agreement contract
- Recent statement of assets and liabilities
- Recent statement of the property value
Required information about the property
- A copy of the purchase agreement (signed by both parties)
- Original valuation report
- Structural survey report (when required)
Required information to substantiate your financial position
- Employer’s statement: a statement provided by your employer confirming your annual income based on salary, bonuses and fringe benefits.
- Salary specification: your monthly pay slip has to correspond with the employer’s statement.
- Statements of your savings account, loans, investment portfolios and property owned outside of the Netherlands.
- Confirmation of the tax department’s granting of the 30% ruling if you applied for this.