Mortgages in the Netherlands: 2019 changes

A lot of things have changed compared to last year, such as the maximum amount of mortgage you are allowed to borrow, taxes and tax deduction, the mortgage guarantee and more. But let’s kick off with the mortgage interest.

Mortgage interest rate

For years, the mortgage interest rate has been historically low. At the moment, it stands at 1,7% for 10 years (fixed rate). The big question is: will it stay so low?

Well, like Mark Twain allegedly said, “It’s difficult to make predictions, especially about the future”. However, at this time, there are no indications the rate will go up. The mortgage interest rate follows, generally speaking, the economic development of a country. A strong growth could lead to higher rates and vice versa.

In 2018, we had such a growth happening in Europe, but recent forecasts indicate a somewhat disappointing economic trend. World trade growth is slowing, there are concerns about Italy’s budget plans, a potential tough Brexit, and French president Macron is under pressure due to the country’s protests.

In this uncertain environment, there is a growing likelihood that the ECB (European Central Bank) will use other means to keep long-term interest rates low and stimulate the economy. Therefore, it’s likely that mortgage interest rates will continue to remain low for some time and only increase from 2020 onwards.

Maximum mortgage

Each year, the Nibud (Foundation National Institute for Budget Information) determines the so-called “living quote”. This is the percentage of your income which you are allowed to spend on your mortgage. For most levels, this has increased by 0,5%. This means that most people can borrow a higher amount: about 3.500 to 5.000 euros more for people with a mid-income and 7.000 euros upwards for people with a higher income. There is an exception though; nothing changes for people with an income between 50k and 65k.

Gross income Max 2019 Difference 2018
€30.000 €137.402 € 3.523
€35.000 € 160.302 € 4.110
€45.000 € 211.388 € 5.285
€50.000 € 234.875 No change
€60.000 € 294.313 No change
€65.000 €343.505 No change
€70.000 €373.887 €7.630
€85.000 €479.145 €9.982

Based on a single income with a 10-year fixed interest rate of 1,7% (NHG) and 2,25% (Non-NHG)

Want to know your maximum mortgage? Use Expat Mortgage Platform’s maximum mortgage calculator!

National Mortgage Guarantee (NHG)

The National Mortgage Guarantee (NHG) ensures that you will not be left with a residual debt if you have to sell your house at a loss as a result of unemployment, work disability or divorce.

The maximum limit of the National Mortgage Guarantee will be substantially increased in 2019: from 265.000 to 290.000 euros. This is an increase of 25.000 euros. This is a very welcome increase, because house prices have risen sharply in recent years. However, in Amsterdam and Utrecht, the average house prices are already way above this limit.

Even more good news: the premium for the National Mortgage Guarantee has been reduced by 0,1%. A homebuyer will pay 0,9% for this “insurance” in 2019. With the maximum mortgage (guarantee) of 290.000 euros, this means you will pay 2.610 euros. This is a lot of money, however, usually you get a lower interest in return, which will make a big difference to your monthly costs. Moreover, the costs for the NHG are tax deductible.

Loan to value (LTV) remains 100%

The maximum mortgage amount you are allowed to borrow also depends on the value of the house you are buying. This is called the “loan to value” (LTV for short). Not so long ago, you could borrow more than the value of the house, up to 108%. However, over the past few years, the LTV level has been brought back to 100%.

So, you can finance your home for the complete amount, however, you still have to pay some additional costs such as transfer tax, valuation, notary, advice etc. yourself. This amount usually comes in at 4% to 6% of the house value.

However, there is an exception for people who also invest in energy-saving facilities when buying a house. They may borrow up to 106%, provided they use this additional loan for energy-saving measures, such as wall, floor or roof insulation, HR ++ (+) glass or solar panels.

Mortgage interest deduction lower

In the past, you were allowed to deduct the mortgage interest at the maximum tax rate of 52%, if your income was eligible for this, of course. However, this rate is gradually being lowered. If your income is higher than 68.507 euros, you will pay 51,75% tax on it.

Unfortunately, you can now only deduct the mortgage interest at 49%. And from next year, this rate will fall even faster, by 3% per year. So, in 2020, it will be 46%, and it will continue to decrease until the limit of 37% has been reached in 2023.

To compensate, it is expected that the income tax rate in the highest bracket will also be reduced. But when and by how much is not yet clear.

Income tax lower but basic VAT going up

The income tax rates have been lowered for 2019, so that’s good news. Unfortunately, other costs such as the low VAT tariff (from 6% to 9%) and other small taxes and levies are rising. The low VAT tariff is applied to basic goods and services, like groceries, water, medicines, books, hairdressers, shoemakers and art, as well as services a new homeowner will likely need, such as painting, plastering and insulating.

As compensation, income tax has been lowered, especially in the mid-income section. People in this section pay 2,75% less in taxes. A consequence of this is that you also have less interest deduction, of course. Here are the new tax brackets:

Gross income 2019 2018
Up to €20.142 36,55% 36,55%
Up to €68.507 38,10% 40,85%
From €68.507 51,75% 51,95%

National rental value (Eigenwoningforfait, EWF) lowered

Another small tax windfall: the notional rental value (EWF) has been slightly lowered. The EWF is a percentage of the value of your home that you must add to your income. Your income is therefore a bit higher and you have to pay tax on that.

The value of your house is determined annually by your municipality. This is also called the WOZ value. Most people will have to pay 0,65% of the WOZ value in 2019, which is a decrease of 0,05%. So, if your house is worth 200.000 euros, you have to add 1.300 euros to your income (instead of 1.400 euros) and you pay taxes on that. The expectation is that the EWF percentage will drop further and further. Unfortunately, the WOZ value is rising.

Expected development of EWF percentages

House value 2018 2019 2020 2021 2022 2023
Up to € 12.500 0% 0% 0% 0% 0% 0%
€ 12.500 – € 25.000 0,25% 0,25% 0,20% 0,20% 0,20% 0,15%
€ 25.000 – € 50.000 0,40% 0,35% 0,35% 0,30% 0,30% 0,25%
€ 50.000 – € 75.000 0,55% 0,50% 0,45% 0,40% 0,40% 0,35%
€ 75.000 – € 1.060.000 0,70% 0,65% 0,60% 0,50% 0,50% 0,45%
From € 1.060.000 2,35% 2,35% 2,35% 2,35% 2,35% 2,35%

If your home is worth more than 1.060.000 euros, the EWF is 2,35% over the excess. This is also called “villa tax”.

WOZ value rises

“The average WOZ value of dwellings will increase by 7,5% to 9,5% next year”, wrote the Valuation Chamber in a letter to the State Secretary for Finance. This concerns the WOZ value of 2019, which relates to the market development between January 1, 2017, and January 1, 2018.

This means that you have to pay more tax via the so-called Eigenwoningforfait (EWF). But as the late Johan Cruijff said: “Every disadvantage has an advantage”. And that also applies here, because if your house has become more valuable, you may have to pay less mortgage interest.

This goes as follows: As a homeowner, you often pay a risk surcharge on top of the (standard) mortgage interest. This surcharge is determined by the ratio between the market value of the house and the mortgage amount. In the beginning, this ratio is often 100%. The value of your home is, for example, 200.000 euros and you also borrowed the same amount.

But after a few years, you will have repaid a bit of your mortgage and your home may have increased in value. Suppose the residual debt is 195.000 euros and the house value is 218.000 euros. This means that the rate has already gone back down to 90%, which means you end up in a lower risk class and the mortgage interest rate can go down.

Whether this is possible with your mortgage depends on the conditions and the risk classes that your mortgage provider uses. Your mortgage advisor can help you with this.

Phasing out the “Hillen” law

There is a curious Dutch law regarding EWF taxes. If you do not have a mortgage, you only have to pay EWF taxes. The “Hillen law” prevents that: No mortgage interest deduction means no EWF. However, from 2019, this law will be phased out by 3,33% per year over a span of 30 years.

So, suppose your EWF is now 1.300 euros and you do not have a mortgage interest deduction, you can omit 96,67% of that amount. Next year, it will be 93,33%, the next year 90% and so on … It ultimately means that in 30 years, you will have to pay the full amount of EWF, even if you do not have a mortgage interest deduction.

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