Prospective homeowners had a pleasant surprise when on 1st July the transfer tax (“Stamp Duty” in the UK) on property was reduced from 6% to 2%. This reduction – a temporary measure to give the Dutch housing market a boost – is valid from 15th June 2011, retroactively, until 1st July 2012.
This considerably cuts additional costs when buying a home so if you were to buy a property costing €250,000, you save €10,000. And if you have already bought a property recently, but the transfer is still to take place, you can use this additional money to either reduce your mortgage or to make additional improvements to the house. This was the good news, but home buyers should be aware of some other significant changes.
Changing the rules for mortgages
The not-so-good news is that per 1st August there is a new “code of conduct” for mortgages. All new mortgages will be limited to 106% of the purchase price. The buyer’s costs can still be financed and it is still possible to buy a property without any down payment. However, it is no longer possible to clear any outstanding debts (such as credit cards) with the new mortgage.
Secondly, the new mortgage code permits the bank to lend you no more than 104% of the increase in value that renovations (like a new kitchen or bathroom) bring about. The 104% doesn’t sound too bad but the following example illustrates the effects:
Property purchase price € 250,000
Buyers’ costs, 6% € 15,000
Maximum mortgage € 265,000
So far so good, no cash down payment needed. But suppose you wish to have an additional €20,000 for renovations, bringing your total need up to: €265,00 + €20,000 = €285,000 in all.
The maximum finance for the renovation is 104% of the increase in value of the property. Let’s say you get a valuation report that assesses the value of the property after renovation to be €264,000 (so an increase in value of €14,000). This brings the maximum mortgage under the new code to:
€ 250,000 x 106% = € 265,000
€ 14,000 x 104% = € 14,560
Total max mortgage loan € 279,560
But the amount needed was € 285,000. The difference of € 5,440 must therefore be paid from your own savings!
A word of advice
For homeowners who have a property to sell, note that a house that is already renovated will be easier to sell in the future due to the new mortgage code. If your prospective buyer has a choice between a fully renovated house or one that still needs a lot of work, the new rules and regulations will make the renovated house the more attractive option in many cases.