The first thing you probably ask yourself when you decide to take out a Dutch mortgage is this: “Okay, so what can I afford to buy? In other words, you want to know about your borrowing power.
In the Netherlands, there are several things that will determine how much money a bank will lend you — and many of these are specific to when exactly you decide to take out a mortgage.
So, what’s your borrowing power in the Netherlands going to look like this year?
It’s a big question, so we decided to turn to the experts for an answer. We spoke with Henk Jansen from Expat Mortgages to get the best advice possible — dig in!
What is borrowing power?
Put simply, your borrowing power is the amount of money that you can afford to loan to secure a Dutch mortgage.
This is determined based on a number of factors:
- Your gross annual income. Yep, that’s right, gross. While only a certain amount of your income may be landing in your bank account, when calculating your borrowing power, your net income plus the tax you pay will be considered. Why? Because the interest paid on a loan for a property in which you live is tax-deductible.
- The term of the mortgage. How long you decide you want your mortgage term to be will also affect your borrowing power. In the Netherlands, the standard mortgage term is 30 years. While there are shorter terms that you can choose, it’s worth noting that the shorter the term of the mortgage, the lower your borrowing capacity. This is because you will have to pay higher monthly costs in order to pay off the mortgage within a shorter term.
- The interest rate. The higher the mortgage interest rate, the lower your borrowing capacity. If the interest is higher, less of your woonquote (income that can be spent on housing) can go towards capital repayment, so you can borrow less.
Good to know: If you have a partner, their income will also be considered. In 2023, it will account for 100% of the calculation (as opposed to 90% last year).
Changes for your Dutch borrowing power in 2023
However, as we said above, your borrowing power will also be affected by the climate in which you decide to take out a Dutch mortgage. So, what’s different in 2023?
Dutch mortgage interest rates remain higher
In 2021, the average Dutch mortgage interest rates stood between 1% and 2%. In 2022, the Netherlands started to see these percentages rise for the first time in years, reaching between 2% and 4.5%. So what’s happening with Dutch mortgage interest rates in 2023?
Mortgage interest rates have remained high in 2023. However, there is also less of a dramatic gap between the various types of rates (for example, 10-year versus 30-year interest rates), with figures lingering around the 4%-5% threshold towards the end of 2023.
READ MORE | Which experts can save you money when buying a house in the Netherlands?
Indeed, 2023 has proven to be a less volatile year for Dutch mortgage interest rates, with June 2023’s rates looking similar to January 2023.
So, what do these rates mean for your borrowing power in 2023? Well, on the bright side, mortgage interest is tax-deductible. However, ultimately, when a higher interest rate has to be considered, your borrowing power is going to be slightly reduced.
What determines Dutch mortgage interest rates?
In the Netherlands, mortgage interest rates are influenced by two things:
- The loan-to-value ratio (LTVR) or risk category and
- The fixation period, i.e. the length of the mortgage term
The loan-to-value ratio (LTVR) sounds tricky, but it’s actually quite simple.
For example: If a house is worth €350,000 and you want to take out a loan for €350,000, then your LTVR is 100%. This means that your LTVR also falls into the high-risk category.
And the result? You will have to pay higher mortgage interest, which in turn lessens your borrowing power.
The level of risk involved in loaning you money for a mortgage in the Netherlands is also increased by inflation. Something that the Netherlands has seen plenty of in the past year.
As the cost of living rises, so does the risk involved in loaning money — which has landed us with the current mortgage interest rates.
But a good deposit could save you
On the other hand, if you decide to finance more of your bid yourself, you’ll actually benefit from better borrowing power.
For example: If €50,000 of your bid comes from your own savings, then your LTVR is only 85%.
By offering to pay more of your own contribution towards your house, you reduce your monthly costs, your risk category, and in turn, your interest rate. Ta-da! That gives you higher borrowing power.
Lower monthly costs? Yes! You’re paying back a lower mortgage because you already partially paid for your home. On top of this, as a result of opting for lower-risk, you also benefit from a lower interest rate.
Loan more money with sustainable measures
As we all know, energy in the Netherlands is getting (much) more expensive. Henk from Expat Mortgages has seen how this interacts with the housing market.
“We see a lot of people looking for sustainable measures to reduce energy costs and be less dependent on, for example, gas,” he tells us.
Not only are sustainable housing options a good move to consider when you already own a home, but also when you’re looking to buy one.
READ MORE | Am I eligible to get a mortgage in the Netherlands?
If you wish to make sustainable changes to the home you are interested in buying, then you actually increase your borrowing power.
In the Netherlands, people who want to take out a loan on a home that they plan on making more sustainable can borrow up to 106% of the value of the home in 2023.
Far less help from your parents
One common boost to people’s borrowing power in the Netherlands is the jubelton. Up until this year, hopeful homeowners could receive up to €106,671 in financial help from a generous helper, such as a parent. The result? A big boost in your borrowing power.
However, as of January 2023, the jubelton has been reduced significantly to €28,947 — meaning yep, your borrowing power won’t enjoy the same boost it used to.
Advice from a mortgage expert
So, what should you do with this information? The best thing is to listen to the experts — and that’s exactly what we did. Henk has been working in the mortgage industry for nearly 30 years and has helped countless people (especially expats) buy houses in the Netherlands. Here’s what he had to say.
I know what I want to do, now what?
Expat Mortgages have tailored their skills for internationals in the Netherlands. Reach out to them now to organise a free-of-charge appointment with an expert. Curious what your borrowing power could be? You can use this mortgage calculator tool to give you a rough idea!
Fixed versus floating mortgage interest rates in 2023
One thing that is certainly going to impact your borrowing power is mortgage interest rates. So what are fixed and floating mortgage interest rates?
- A floating mortgage interest rate loan means that the interest rate will change slightly throughout the loan period. This change is based on fluctuations within the market.
- A fixed mortgage interest rate loan does what you imagine, the interest rate is fixed throughout the period of the loan.
When considering the current mortgage interest rates and what type of mortgage will be best for your borrowing power, it’s all about hindsight, Henk says.
He points out that, yes, while mortgage interest rates have been very low over the past two years, the current interest rates are certainly higher — but they’re still average.
“Indeed, interest rates have been below 4% since 2013, and we are seeing a rise due to inflation. However, in the grand scheme of things, 4% interest on a fixed mortgage term of, say, 30 years, is still very attractive and below average.”
Meaning that regardless of which option you opt for in 2023, you can breathe a sigh of relief knowing you’re still getting a good enough deal in the grand scheme of things.
That being said, Henk is very much aware that things in the housing market are taking an interesting turn. “In my 30 years of working in this industry, I have never seen such a large gap between the fixed and floating mortgage interest rates.”
For how long should you fix your mortgage interest rate?
When considering whether or not you want to opt for a period with a higher or lower mortgage interest rate, Henk points out that it’s important to consider two things:
- Firstly, higher mortgage rates mean higher monthly costs. However, it’s worth remembering that these are tax-deductible, meaning you have a higher tax advantage.
- Secondly, a higher mortgage interest rate also means you will have a slightly lower borrowing power.
What should international homebuyers in the Netherlands consider?
This all applies to a fixed mortgage, but what about a floating interest rate instead?
“One thing that is worth considering as an international in the Netherlands is a floating mortgage interest rate,” Henk tells us. But why?
Well, as an international, you are less likely to want a 30-year fixed mortgage loan. After all, you may decide further down the line that you want to move back to your home country.
“In this case, you’re better off taking advantage of a floating mortgage loan and the lower interest rates that accompany it,” Henk explains.
This way, you can enjoy higher borrowing power when entering the Dutch housing market.
Are you an international who has bought a home in the Netherlands recently? Tell us about your experience in the comments below!
Editor’s Note: This article was originally published in October of 2022, and was fully updated in July 2023 for your reading pleasure.
I think that taking a risk with no money down or less than 20% is very risky.
Never do an adjustable mortgage. Lock in with the highest down payment you can
You want to live not merely survive!
Even as a Dutchman, this international perspective is very valuable to me. Thanks, Sarah!
We bought house on 2022 end and for us floating interest is at 4.9% and it seems to increase all the way! Where is this 2% floating ok interest? Did I take something wrong? I took from ABN Amro