Investing in the owner occupied and mortgage market in the Netherlands
The Dutch owner occupied and mortgage market offers several opportunities for private investors. The government promotes entry of new parties to the mortgage market.
Owner occupied market
The owner-occupied market makes up some 60% of the housing market. Home-ownership is supported through fiscal measures.
The owner-occupied market was hit by the economic downturn but is now recovering. House sales are increasing by double digits and house prices are picking up.
Fiscal aspects of home ownership
There is an elaborate tax system in place affecting homeownership and home financing.
- Owner-occupied homes are subject to a real estate tax levied by local communities. They are generally exempt from capital taxes.
- Imputed rent is taxed at a modest percentage of the value of the property. Interest over mortgage loans is tax-deductible, as are the administrative costs associated with the purchase of the dwelling.
- Transaction taxes apply when purchasing a home, but these have been significantly reduced in recent years.
Increasing house sales also result in a growing demand for mortgages. Since mortgage lending and funding by domestic parties has been constrained, demand may exceed supply, offering opportunities for foreign investors.
The loan-to-value ratio (LTV) for mortgages is relatively high because of a long tradition of mortgage funding. Nevertheless arrears and defaults on mortgage payments by borrowers are very low compared to other countries.
Rules for mortgage lenders are listed in the Code of Conduct for Mortgage Financing. The following rules apply:
- The maximum loan-to-value (LTV) and loan-to-income (LTI) ratios for mortgages are determined by the government.
- Mortgage loans are secured by vested mortgage rights on real estate property. The originator has the right to foreclose this property if the borrower is no longer able to fulfil his obligations.
- The recourse to the borrower is in most cases wider than only to the underlying property. If a bank mortgage right is vested, the originator has full recourse to the borrower. The originator can also make claims to his or her wealth and even to future income.
Government policy reforms
The government is working to reduce debt risks for house¬holds and banks. Furthermore, the government is trying to create a more competitive mortgage market with improved funding possibilities.
The following steps are being taken:
- gradual reduction of mortgage loan-to-values;
- encourage full amortization of mortgages;
- promote the use of family savings for home purchases;
- more competition and improved funding in the mortgage market. It will become easier for new foreign investors to enter the Dutch mortgage market. These new entrants can either supply new mortgages directly to consumers. Or invest in mortgages through socalled RMBS or covered bonds.
These measures are expected to improve the resilience of the housing market and the stability of the financial system.