Home renovations

Home renovation financing with Dutch mortgages

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If you take out a mortgage to buy a home in the Netherlands, there's a special little feature provided by many Dutch mortgage companies called a bouwdepot, a portion of the mortgage that can be used for renovation or construction work.

What is a bouwdepot?

When you would like to renovate your property or the property you will purchase in the near future, it is possible to finance this renovation with a bouwdepot. A bouwdepot – or construction deposit – is essentially a home renovation loan that can be provided by mortgage companies as part of your Dutch mortgage when you buy a home in the Netherlands. This means that, in addition to borrowing money to purchase the property when buying a new home, part of the mortgage will be received later down the line if, for example, you want to build an extension or upgrade your kitchen — you don’t have to worry about taking out an additional renovation loan. 

Additionally, it is possible to get an appraisal value based on the after-construction state of the property. This means it will be possible to get a mortgage of 100% of the market value after construction.

But although over 60 percent of the Dutch population have mortgages, one of the highest rates in the EU, there are many expats that don't know about the benefits of the bouwdepot.

How does a bouwdepot work?

When you take out a mortgage to buy a new home in the Netherlands, you can arrange for a portion of the money which you borrow to remain in a deposit account with the bank for future use as a loan to fix up your house. A valuation report which estimates the cost of the construction is then necessary, and you need to specify to the bank what the money will be used for, and what the cost will be per construction job.

This deposit can be used when you get invoiced by the construction company. You will need to spend it within a period of two years once it's been activated. A bouwdepot is not usually provided as cash — depending on your mortgage company’s procedures, you can get either reimbursed after you paid the invoice yourself or you can declare the invoice and use the deposit money to pay the invoice.

An additional bonus to the bouwdepot is that you receive interest on it while it sits unused in the account, which offsets the interest on your mortgage repayments. Interest also accrues on money left on the bouwdepot during the first 18 months of its use.

What can you use a bouwdepot for?

You can use a construction deposit for construction and renovation work on your home. For example, it could be used to build an extension, to convert an area of your home (e.g. a loft), to refit or refurbish a room (e.g. a new bathroom), to replace fixed items (e.g. doors or windows), to cover decoration costs, or to carry out work on your garden. Funds can be used on materials and labour costs. Using the construction deposit for an electrician or a new tiled floor is fine, but a new sofa or a shower curtain is not allowed.

Plans are usually agreed with the mortgage adviser before purchase and are detailed in an agreement along with cost estimates. It's fine to deviate slightly from plans or spend a little bit under or over, but any large-scale changes won't be permitted.

How much can you borrow?

Your bouwdepot construction deposit can be for large or small renovations. Some mortgage companies may have a minimum threshold (e.g. EUR 2,500). The maximum amount will depend on a few different factors:

  • The mortgage you have. The construction deposit is part of your mortgage rather than being a separate loan. The maximum mortgage you can have in 2018 is 100% of your home's market value.  This can be the market value after construction when the future construction is included in the valuation report.
  • The extent of the positive impact on the value of your property following the renovations.
  • The maximum mortgage based on your income.
  • How much you are financing the renovations out of own savings.

The steps necessary to arrange a bouwdepot

To take advantage of a convenient home renovation loan with a bouwdepot, follow these five simple steps.

Step 1: Speak to your mortgage adviser. The mortgage adviser knows about the specific requirements of each bank regarding the construction deposit. This should be done during your mortgage application process, although some mortgage companies will allow you to take out a bouwdepot as an increase on your mortgage post-purchase.

Step 2: Specify what you want to use your construction deposit for and how much you intend to spend on each part of the renovation.

Step 3: When you want to activate your bouwdepot, notify your mortgage company.

Step 4: Get the renovation work carried out.

Step 5: Send the bills to your mortgage company (or pay and send invoices/receipts to get reimbursed).

If you're an expat looking to buy property in the Netherlands, it might be worth thinking ahead when it comes to financing home renovations and speaking to your mortgage adviser about a construction deposit. 

Expatica

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