The Dutch government continues to reduce benefits offered to home buyers, but market predictions and low interest rates show Dutch housing is still hot property in 2016.
The Dutch housing market lurched homeowners about as prices fell more than 20 percent in the five years following the global economic crisis. But strong growth predictions and economic recovery have put home buyers in the Netherlands back on a positive investment path.
Now historically low interest rates and increased consumer confidence are sparking a rush of foreign investors to the Dutch housing market, as property prices showed considerable growth throughout 2015 and are expected to rise further in 2016.
Home buyers in the Netherlands are still in a situation to take advantage of the favourable investment conditions, as experts predict that low interest rates and economic growth will continue throughout 2016.
Here independent mortgage broker Expat Mortgages explains everything you need to know before buying Dutch property.
Dutch housing market 2016: Growth and yields
Housing experts reported that Dutch property prices rose in all provinces and cities across the Netherlands in 2015; growth rates had already more than doubled (y-o-y) in popular locations such as Amsterdam, The Hague, Utrecht, Rotterdam and Groningen by the second quarter 2015.
“The recovery in the housing market is no longer limited to urban areas, and home sales are also improving outside the cities,” reported NVM Chairman Ger Hukker.
Bank analysts predict that housing prices will record growths between 1.5 and 3.5 percent for the year 2015, with a mild growth prediction expected in 2016 of 2–4 percent, with above average increases in Noord-Holland and Utrecht.
Interest rates continue to hit record lows, for example, Expat Mortgages reported a drop in interest rates for a 10-year or more fixed mortgage plans by 16 percent in 2016, which now start as low as 2.1 percent, while short-term fixed mortgage plans rates can start at less than 2 percent interest, one of the lowest on record since the effects of the global economic crisis took hold.
With reduced mortgage costs and an active housing market, yields on properties in Amsterdam range up to 5–6 percent, while in The Hague, where property is cheaper, yields are estimated as high as 7 percent.
Maximum mortgage limit lowered in 2016
The Netherlands has an unusual mortgage system where Dutch mortgages can exceed the property price to cover some of the transaction fees, which total about 6 percent of the purchase price in the Netherlands.
To control the country’s high mortgage debt, the limit is being reduced each year by one percentage point until it reaches 100 percent in 2018. On 1 January 2016, the maximum mortgage limit was reduced to 102 percent.
However, this could be drastically cut further if Dutch Central Bank President Klaas Knot has his way. Knot advocates that the government should restrict mortgages to no more than 90 percent of the price, to align the Netherlands with neighbouring countries, address concerns from the International Monetary Fund (IMF) and the European Central Bank, and further reduce the mortgage-debt-to-GDP ratio.
However, parties with interests in the Dutch housing market — lenders, lawmakers, home buyers — oppose the plan and claim it would burden the recovery that has just started beyond the big cities, such as Amsterdam.
Beside the house value is another important ceiling for a new mortgage: the income. The income thresholds for 2016 were published this fall.
Lower maximum tax deductible for mortgages
The Dutch government offers tax exemptions for interest paid on mortgage repayments for primary residences. If you have an annuities or linear mortgages, for example, you will receive a monthly or yearly tax refund on part of your paid interest.
The maximum tax exemption rate, however, is being reduced by half a percentage point each year until it reaches 38 percent in 2041, although mortgages from before the reform in 1 January 2013 are not affected. In 2016, the maximum tax rebate rate was decreased to 50.5 percent.
This reform only affects homeowners who are placed in the highest (4th) tax bracket; in 2016, this includes gross annual incomes above EUR 66,421.
Gift tax exemption to rise
The Netherlands allows a temporary parental gift tax exemption (schenkingsvrijstelling), where those aged between 18 and 40 years can receive a one-time donation from their parents as a tax-free gift to buy a property.
For 2016, the maximum gift amount was set at EUR 53,016, although this is expected to be raised again to a maximum level of EUR 100,000 in 2017. However, parents who used the one-off exemption in 2015 or 2016 may increase their tax-exemption donation to EUR 100,000 in 2017 as well.
In addition, in 2017 a parent-child relationship will no longer be necessary to quality for the exemption.
NHG limit to drop
The National Mortgage Guarantee (NHG) is a guarantee provided by the foundation WEW (Stichting Waarborgfonds eigen Woning) to your mortgage lender (ie. a bank), which allows the bank to claim loan repayments from the foundation if you can’t repay your mortgage.
This scheme covers properties up to a maximum value, currently set at EUR 245,000. However, this limit will be decreased to EUR 225,000 in July 2016.
This means that anyone who wants a new mortgage collateral and interest rebate of NHG cannot purchase a house more than around EUR 212,264 from that date, considering the cost of additional fees (broker, notary, etc) of some 6 percent additional fees. Until July 1 2016, the maximum purchase price is calculated at EUR 231,132.
WOZ value public (in October 2016)
On 1 October 2016, the WOZ (Waardering Onroerende Zaken) value of each property will be made public — this is a value assigned by the municipality at the beginning of each year, which subsequently forms the basis of calculating certain municipal taxes such as property tax, income tax and water charges.
The reform will allow homeowners via a website to compare property tax value of their home with self-selected reference buildings. If a homeowner doesn’t agree with their new WOZ value, they can object up to six weeks after receiving the statement issued by the municipality.
Relaxed mortgages consequences and reporting
Since 2013 homeowners have been obliged to repay their mortgage debt via an annuity repayment schedule in order to get mortgage tax exemptions. However, if minimum debt repayments go unpaid for more than one year, a homeowner risks their mortgage being transferred to tax box 3, where no deductible can be claimed.
Under the government’s Tax Plan 2016, however, as soon as the debt reaches an acceptable level according to the payment plan, a mortgagee can be taxed again under box 1 and the interest deductible claimed again.
Additionally under the plan, those who took on or amended a loan from a private lender (company or individual) previously had to report to the Dutch tax authorities using a separate form, or risk not being able to claim a tax exemption. In 2016, this can now be reported via your Dutch income tax return.
Energy saving measures
The Dutch government has allocated EUR 100 million in 2016 as an incentive for homeowners to take on more energy conservation measures. Those who want to finance energy-saving measures with a mortgage can borrow up to 106 percent of the house price after arranging certain energy saving applications to their home
Otherwise, an allowance can be claimed for the purchase of biomass boilers, pellet stoves, heat pumps and solar water heaters. Other energy saving measures might include: solar panels, cavity wall insulation, roof insulation, floor insulation, or HR ++ glazing.