From 1 August, banks will no longer be allowed to extend mortgages for more than 106 percent of the actual value of the property being bought - that is 104 percent (purchase price + additional costs) plus two percent property transfer tax.

On 1 July, the Dutch government decided on a regulation to help the Dutch housing market. The transfer tax was reduced for a period of one year from 6 percent to 2 percent. This new rule will be effective until 30 June 2012.

In addition, the new rules state that only 50 percent of a mortgage can be financed by an interest-only mortgage. At the moment, most banks will lend up to 80 percent on an interest payment-only basis.

Why are the rules being changed?
Research by the financial services sector regular AFM showed that banks had become much less likely to extend so-called top mortgages, partly due to the economic crisis and partly due to regulatory attention. The new rules are aimed at making sure this more cautious approach continues in the long-term.

In general, Expat Mortgages does not predict much changing for its clients. We have seen that most of our clients prefer to repay a large part of their mortgage within 30 years anyway.

In particular we advise clients who plan to live less than 10 years in the Netherlands to repay a large part of the loan. This reduces the risk of them ending up in negative equity when the property is sold.

Does this mean house buyers will not be able to borrow as much?
No, in general it is still possible to include costs related to the mortgage and getting the property in your name.

The only exceptions compared to the old rules at the moment are:

Mortgage with NHG (National Mortgage Guarantee)
When you want to have the NHG, this means you need to pay a one of fee to NHG. Advantage of a NHG guarantee is a lower interest offered by the bank (on average 0.5 percent lower than mortgages without NHG guarantee).
In that case, it could be that you need chip in EUR 1.000 up to EUR 2.000. How much depends on the costs included in the mortgage, such as fees for the estate agent, notary and bank/mortgage broker.

The second exception is when you would like to include money for renovations in the mortgage.
Since not every EUR 1 spent will reflect in a EUR 1 higher market value after renovation (ratio approximately EUR 1 spent will reflect in EUR 0,75 higher market value after renovation) you need to be aware that part of the renovation needs to be paid for out of your own means.

What is a top mortgage?
A top mortgage is one in which the mortgage holder has borrowed more than the current value of the property. The lower the mortgage compared with the property value, the bigger the discount mortgage providers are willing to give. This is because the risk that the property itself is worth less than the mortgage is reduced.

Can I still cover rebuilding work in my mortgage from 1 August?
Yes, but in most cases not all the money necessary to renovate anymore. The reason for that is that banks will finance a maximum of 104 percent of the increased value after renovation

An example:

Purchase/Market Value.....300000
Costs, 6 percent.....18000
Max mortgage 106 percent purchase price.....318000

Renovation.....30000
Market value after renovation.....322500
Increase of market value related to renovation (assumption 75 percent of renovation will reflect in increased market value).....22500
This increased amount * 104 percent can be financed.....23400

Total loan (Purchase*106 percent and increase of market value related to renovation *104 percent).....341400
Total amount needed.....348000
Shortfall/ own means.....6600

I have an interest-only loan. What changes for me?
Nothing at the moment as the new rules only apply to new mortgages. But it would be wise to work out how you are going to pay off the principal loan at the end of the mortgage period.

I want to remortgage. How does the new rules effect my possibilities?
Depending on the bank, remortgaging has different (read, slightly more flexible) terms compared to mortgaging a newly purchased property.

Bear in mind that the value of the property is still leading and this value could be lower currently compared to value a few years ago. When refinancing the new mortgage should be in line with new regulations, meaning a maximum of 50 percent of the value of the property on terms interest only.

Chris van Maasdijk
Expat Mortgages (www.expat-mortgages.nl)