Savvy Expat Mortgages clients release equity in their homes to buy property abroad

Dutch house prices have risen almost 11 percent in a year and are at their highest level ever. At the same time, it’s less attractive to invest in being a private landlord in the Netherlands due to extra rent controls and taxes.

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Investing in property abroad

At Expat Mortgages, the experts are seeing that clients who bought wisely years ago are still looking for a way to capitalise on their house price increase. And one of the ways is to use what is known as a “box 3 mortgage” to invest in other assets abroad.

“We always had a lot of questions from our existing clients, living in a house, as to whether they could buy a small apartment in another city like Amsterdam that they could rent out,” says Richardo Cruz Fortes, partner at Expat Mortgages, who is giving a seminar on this investment opportunity on September 19.

“Investing in real estate in the Netherlands has become unattractive for small investors. However, these people are also living in a house that has increased in value, and that’s something they would like to use for investment purposes – but not in the Netherlands…”

One set of clients at Expat Mortgages is using the equity they have built up in their residential home to invest in a property in France. Another couple is investing in a property in Dubai. Another has used it to pay off an expensive mortgage on their old house in Portugal.

“It might not be interesting to invest in real estate in the Netherlands, however, people who own a house that’s worth more than they bought it for could use this excess for investing in property in another country,” says Richardo.

From box 1 to box 3

A normal home loan in the Netherlands is known as a “box 1” mortgage. This is because your salary and the home you live in are counted in “box 1” of the three types of income for tax purposes. With box 1 comes a set of perks, meaning you can deduct some of these “box 1” mortgage interest payments from your tax bill.

But, explains Richardo, if you release the equity in your home – in other words, take out a higher mortgage because the property is worth more – but use the cash for something else, this becomes a “box 3” mortgage, part of your wealth.

“A buy-to-let mortgage has interest rates of 5.5 percent or 6 percent but taking a box 3 mortgage on your residential house will have the interest rate that is applicable today, in the range of 4%,” he says. “The interest won’t be tax deductible, but the return on investment on a property abroad could well be higher than in the Netherlands. This is really worth investigating!”

Do your research

You should consult experts in the country where you are considering buying – so that you also fulfil your tax obligations there. You’ll also need to report the value of the asset each year to the Dutch tax authority: if there is a “double taxation” treaty, you shouldn’t be taxed twice.

To comply with money laundering rules, your bank will need a detailed statement about what the money will be used for. You need to be aware that if you take on a higher loan, you will still need to repay this, even if property prices fall in the Netherlands.

“It needs to be a well-thought-through decision: not only ‘can I carry the burden of having an additional mortgage financially’, but also mentally,” says Richardo.

Long-term vision

“But this is no different to the questions you ask when you buy a house in the Netherlands. This is also investing, investing with borrowed money. It is very easy to borrow money in the Netherlands for mortgage purposes and for investment as well, because your property is the collateral. Since 2016, property prices have doubled. You need to have a long-term vision.”

Join the Expat Mortgages seminar

Join the housing event about the potential of Box 3 mortgages, with the expertise from the experts of Expat Mortgages, live on location at Zandkasteel in Amsterdam on September 19.

What can you expect from the event?

• In-depth information: Gain a better understanding of how box 3 mortgages work and how you can benefit from it.
• Strategic insights: Learn and discover strategies to optimise your mortgage structure under box 3.
• Q&A session: Have your questions answered by Richardo, our mortgage expert, ensuring you leave with valuable insights

About the seminar

• Title: Unlocking the financial potential of your Dutch property
• Date: September 19, 2024
• Time: 6pm, walk-ins from 5.30pm
• Where: Zandkasteel, Bijlmerplein 888, 1102 MG Amsterdam