Buy-to-let mortgages for expats in the Netherlands: 2018 update

Finsens, a financial consultancy firm providing services and expert knowledge for expats, provides an update on the possibility for expats to take out a buy-to-let mortgage to finance a residential property to rent out.

Expats often come to us asking whether it would be possible for them to purchase a rented property, as apartments and residences in the large Dutch cities are considered interesting investments. Before, expats were only eligible for a buy-to-let mortgage when they were at least three years in the Netherlands. However, there are new parties with less stringent requirements for expats seeking a buy-to-let mortgage.

A good investment

Buying an apartment to lease out can often be a good investment since, in addition to rental income, an increase in property value can be expected.

Obviously, you can purchase such properties with your own private cash if you have sufficient funds. However, by leveraging a large part of the purchase price, you only have to use part of your own cash to go through with a 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 for expats:

• Expats are required to be in the Netherlands on a non-temporary basis. For example, as a knowledge migrant or for an indefinite period of time
• Box 1 income, no minimum gross income
• Financing up to 80% loan-to-value is possible with a maximum of 60% interest only

Provided the above conditions are met, a mortgage can be requested. The buy-to-let mortgage can only be used for long-term rental; Airbnb or any other short-term rental construct is not allowed. The bank has a so-called larger-city policy, which means that only houses in the relatively larger cities can be financed.

Mortgage types

For up to 60 percent of the property value, the type of mortgage can be an interest-only mortgage (with a maximum period of 30 years). If you need financing for more than the 60 percent loan-to-value, the remainder must be a linear mortgage that needs to be repaid on a straight-line basis within 10 years. This can be repaid in part or full any time within 10 years, without a fine.

Additionally, the rental income needs to exceed the interest and repayment based on a 1.25 ratio. So, the annual rental value needs to be 1.25 times the sum of the first-year interest and repayment. If you already receive income from a rented-out property, this ratio decreases to 1.05.

Tax consequences

Rental properties are considered your capital, which is taxed in Box 3. The rental payments from your rented out property are not taxed. For 2018, there are different brackets in Box 3, depending on the total value of your possessions. Please find below the tax levy for 2018 concerning your total capital.

An example of a buy-to-let mortgage

Let us clarify this mortgage structure with an example:

Initial costs

You buy an apartment with a purchase price of 260.000 euros. When you add the additional costs, such as the transfer tax and notary cost, the total cost will be 275.000 euros. The apartment is not rented out yet.

Property valuation

The bank requires a valuation report, and the value of the apartment in a rented-out state is 255.000 euros. Based on this valuation, the maximum mortgage you can request is 204.000 euros (80 percent of the property value). Own savings are needed to the amount of 71.000 euros.

Calculate net rent

The rent is estimated at 15.500 euros per year. The costs for the landlord are estimated at 2.500 euros annually, so the net rent will be 13.000 euros per year. In relation to the net rent, the first-year mortgage interest and repayment should not exceed 10.400 euros (net rent divided by 1.25 or 1.05, if you already have rented-out property).

Compare rent with costs

Assuming an interest rate of 4,5 percent, a mortgage of 80 percent of the market value would be too high to meet the 1.25 criteria. You would need to slightly lower the mortgage. This example does however meet the 1.05 criteria, since a maximum mortgage cost of 12.380 euros would be possible. In this case, you would need to already own a rented-out property.

Revise the financial structure

To conclude, if this is your first buy-to-let apartment, the appropriate financial structure for a property with a total cost of 275.000 euros would be a mortgage of 191.250 euros (75 percent loan-to-value) and a down payment of 83.750 euros.

A worthwhile investment

Whether a buy-to-let rental property is a good investment for you depends on whether you can meet the mortgage conditions, how much of your own savings you have available and if you are prepared for 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.

The author of this article, Henk van Seijen, is a partner at Finsens. To learn more about buy-to-let mortgages, contact Finsens: