End year tips

What a year it has been! I think this year will be remembered as the year of Corona for a long time. We are all ready to bid good-bye to 2020, but I am here to remind you of few things to be taken care of before you close-off the year in style (at home unfortunately!!)

  1. Health Insurance: This is the only time of the year when you can switch your health insurance for the following calendar year. Check out this blog explaining how you can choose one!
  1. Tax deductions: If you are one of those rich people 😊 (earn more than 68,507 Euros per year) and you have tax deductible items like mortgage interest deduction, donations etc., this is for you. On such items, the tax deduction is lower in 2021 than in 2020. Meaning, you will get back less from the belastingdienst (Dutch tax authorities). What can you do about this? Bring your payments forward into this year rather than in 2021. Example: If you want to make a donation, make it now rather than in January and you will get a better benefit. Read more about this on the belastingdienst website.
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  1. Buying your first house: We talked about the rich people, now let’s talk about young people (younger than 35 years in 2021). If you are planning to buy your first home and satisfy a few conditions, you don’t have to pay the Overdrachtsbelasting (Transfer tax). Read about it here. What can you do about this? Wait till 2021 to do your official paperwork.
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  1. Saving on wealth tax: In the Netherlands, the assets you have as of 1st January is used to calculate the wealth tax for that year. Every year, the belastingdienst sets a tax-free limit. Assets (capital) below this limit are exempt from the wealth tax. What can you do about this? You could reduce your assets and in turn the wealth tax on them by making smart choices now in December:
    • Paying your bills and taxes: This is quite simple. Pay all your pending bills, taxes, that speeding ticket you got when you were zipping around Amsterdam etc. These are payments which you cannot avoid, so pay them now and reduce your capital rather than wait till January.
    • Extra payments to your house: After all your bills, you still have money left above the tax-free limit. If you have a mortgage on your house, consider making extra payments to the bank. Most banks accept extra payments up to 10% of the mortgage value without a penalty. This has an added benefit that your monthly payments to the bank will come down. Check with your bank on the possibilities.
  1. Take your vacation days: The way this year has been, we could not travel much, and we could take those vacation days. Most employers have policies that say a certain number of your vacation days will expire if not taken. Check your company policies and take those vacation days before they lapse.
  1. 30% ruling: For many of us impacted by the abrupt ending of the 30% ruling, this December may be the last month when this still applies. What can you do about this? Enjoy the feeling while you can and maybe set aside some money until you get used to the new normal. I know this is not really a tip, but I had to include this!

Leave a comment if you have a question. Hit the Like button if you liked the article!

Steps involved in buying a home in the Netherlands

Hey “An almost proud owner of a home” 😊. Good to see you here! This blog is to explain the steps involved in buying an existing property in the Netherlands. If you are still thinking if you should buy a property or not, do check out my other blog which explains why you should buy with a mathematical example.

So, here we go:

  1. Deciding on the type of property: Do you want an apartment or a house away from the city center or a house in a historical city center? Are you someone who loves gardening? Then maybe you want a house with a garden. Are you someone who loves the waterside? Then, maybe you are looking for canal house. Different people have different wishes – when I say different, I also mean wife and husband 😊. Decide together on what exactly are your wishes. Believe me, this takes more time than you can imagine, so start early!!!! I suggest start looking for properties in your area even if you have no intention to buy that house. This will give you an idea on the different types of properties available and will also give you a clarity on what you don’t want (let’s be honest, when you visit a house, you will mostly spot things which you don’t like – that’s just how our mind works).
  1. Deciding on a neighborhood (buurt): Deciding a city/town where you want to live is one thing. Then you also need to decide on a neighborhood you would like to live. Do you want to live in lively neighborhood bustling with shops/cafes or would you rather live in a quiet neighborhood near a park/lake? Do you perhaps want to live in an area where there is a (international) school? Or something close to public transport? This website shows the liveability of your area. Many cities/towns also have their own websites. Just Google for your city name+ buurtmonitor for information about your city.
  1. Determine your budget: You would most likely need a loan to purchase a house (unless of course you are super rich). So, how much can you borrow from a mortgage lender? This depends mainly on your income and a few other factors. You can make a free first appointment with most mortgage lenders and they will give you an estimate of how much you can borrow. But this can take a lot of time if you have to visit 2 or more mortgage lenders and it will also be difficult to compare them. This is where a Mortgage advisor (hypotheek adviseur) plays a role. The Mortgage advisor can give you quotations from multiple mortgage lenders and also compares them for you. A mortgage (hypotheek) is formally arranged after you have signed the preliminary purchase agreement. However, it is important to make sure you have already investigated your mortgage options and budget.
  1. Looking for a property: You can start looking for a property yourself by using websites like funda, pararius etc. or you can engage a real estate agent (makelaar). Now, you might have a question as to why you should engage a makelaar when you could do it yourself for free? There are some advantages of engaging a makelaar for a fee (there is no such thing as a free lunch 😊):
    • they have early or sometimes even exclusive access to houses which are going on sale.
    • they know the local market and help with negotiation and or the bidding process.

Makelaars have different payment models. Some of them charge a variable fee (% of the house value), some of them charge based on the number of properties you visit before you make a decision and some of them charge you a fixed fee. Do explore your options and agree with them on a payment model before engaging them.

  1. Zero-down on a property: This is of course the most important step. You find a property which you like. Now, what are the things to keep in mind?
    • How do you know if the seller is quoting a fair price for the house? For a small fee, you can get the recent property sale prices per address from kadaster. This gives you an idea about how the asking price of the house compares to recent sales in the neighborhood.
    • Check if the property has ground lease rent or leasehold (erfpacht): In cities like Amsterdam and Utrecht, it is common to find houses with a leasehold – meaning, you don’t own the land on which the house is built, instead you pay a lease amount (erfpachtcanon) to the owner of the land. There can be municipal leasehold or private leasehold. If the property you are interested in is a leasehold property, the seller must inform you about this.
    • Structural survey: You would want to know what the state of the property is before you buy it. Not all faults might be visible to the naked eye. This is where a Structural or Technical survey can help. An independent surveyor can do an assessment of the property and provide you with a detailed report and an estimate of how much repair costs might be (if any).
  1. Bidding and making an offer: It is time to negotiate or bid and make an offer. In some cases, you might be able to negotiate on the asking price. In an ideal word, you wouldn’t want to pay more than the asking price. But with the current demand-supply situation in the Netherlands, there are often multiple prospective buyers for any property. This simply means the highest bidder will be chosen by the seller. Your makelaar can help you decide what is the right amount to bid. When placing a bid, keep in mind that the mortgage lender will give you a loan only for a certain amount. This amount depends on the taxatierapport (explained later).
  1. Sign the purchase agreement: Yay!!! Your bid has been accepted. Finally, things are starting to fall in place 😊 The seller’s makelaar usually prepares the preliminary purchase agreement (koopovereenkomst). It is called preliminary because this is not the formal handover of the property to you (this happens later through a Notary). Make sure the following are covered before you sign it:
    • financing clause: simply means that if you cannot get your mortgage approved, you can withdraw without any penalty
    • structural survey clause: if you are not happy with the Structural survey results, you can withdraw without any penalty
    • The date of transfer of ownership: this is the actual date of the formal handover at the Notary (just can’t wait for this date……😊). Make sure you have enough time between now and the date of transfer of ownership so that you can approach a mortgage lender and arrange your funds.

You will need to pay 10% of the agreed price to the seller’s notary when you sign the purchase agreement. This serves as a deposit. You can get a bank guarantee (waarborgsom) for this if you cannot arrange the funds yourself.

From this point on, the timer has started (tick, tick, tick………).

  1. Valuation report (taxatierapport): This is an appraisal of the property done by an independent valuer (taxateur). You will need this report to approach a mortgage lender for a loan. In 2020, the mortgage lender can offer you a maximum mortgage of 100% of the value on this taxatierapport (not on the asking price or your bid price). The validation institute  NWWI must have validated the report.
  1. Preparing your mortgage application: Reach out to your mortgage advisor/mortgage lender for a loan with all the required documentation (includes your income details, taxatierapport etc). You will be informed of the outcome (hopefully approval 😊) in a few weeks. You can avail tax deductions on the interest paid (hypotheekrenteaftrek). During your mortgage application process, your lender will inform you about the mandatory insurances you need to take.
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  1. At the notary (notaris): The big day has arrived! This is the day you are formally going to be the owner of the property. The makelaar and the mortgage advisor usually accompany you (so you have some men behind you 😉). If you don’t speak/understand Dutch, you will also need a translator. Arrange for a translator prior to your appointment with the notary. In my case, I felt like I had an army behind me 😊 (makelaar, mortgage advisor, translator, my wife and myself). Fun fact: Usually notary deals in the Netherlands happen either on the 1st or the 15th of a month. So, these 2 days are extremely busy for makelaars and translators. What exactly happens at the notary:
    • First, you and the seller sign the Deed of Transfer (Leveringsakte) and the seller hands-over the keys to you (Photo moment 😊). This deed explains about transfer of ownership, the agreed purchase price and other details.
    • Then you sign the Mortgage Deed (Hypotheekakte). This deed explains the agreement between you and the mortgage lender, the amount of loan given to you etc.
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  1. In your home: Welcome home 😊. By far, the most exciting step!!! You have made it this far by going through a hell lot of paperwork (mostly in Dutch)! Don’t forget to pop a champagne and celebrate!
  1. Arranging your utilities: You have to arrange providers for your utilities like electricity, gas, water. You might want to check out this blog about how to choose a Utilities provider.

Costs involved (buyer’s costs usually amount to around 6% of the purchase price) and can include:

  • Transfer tax (Overdrachtsbelasting): This is the transfer tax that you as a buyer pay when you purchase an existing property (bestaande woning). Current situation is that you pay 2% of the purchase price. Starting 2021, this will be zero for first-time buyers under the age of 35. You can read all about it here (in Dutch)
  • The costs of your makelaar (if applicable) [around 1.5% of the purchase price]
  • The fee of your Mortgage advisor [around 3000 Euro to 4000 Euro]
  • (or)
  • The Mortgage processing fee of the lender (if applicable) [around 1000 Euro to 1500 Euro].
  • Notary costs [around 1000 Euro to 2000 Euro]
  • Valuation (Taxatierapport) costs [around 300 Euro to 800 Euro]
  • The bank guarantee costs (if applicable) [around 1% of the guarantee amount]
  • The costs of a structural survey (Bouwkundige Keuring) (if applicable) [around 300 Euro to 800 Euro]
  • Translator fee (if applicable) [around 200 Euro]
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Some of these costs (Notary cost, Valuation cost, Mortgage advisor cost) are tax deductible. So, all is not over….you get back something too!

Personally, I felt a sense of accomplishment after I bought my home. It is a long process to buy a home but well worth investing your time and effort! Good luck!

The explanation mentioned here is purely from my own experience. It is not to be taken as professional advice.

Leave a comment if you have a question. Hit the Like button if you liked the article!

Why should you consider buying a home in the Netherlands

You’ve been living in the Netherlands for a few years now and you have started to think long term. How about buying a property in the Netherlands? It sounds simple, but it is not an easy decision to make! But it can be beneficial to you. Let me explain how.

Renting vs buying: For most of us expats, in the beginning renting is an obvious choice. But a question you need to ask yourself is: How long do you intend to stay in the Netherlands? If the answer is anything more than 3 years, then you should consider buying instead of renting. Let’s take a layman’s example: For an 70 m2 apartment outside the city center (centrum), you typically pay a rent between 1000 Euros to 1500 Euros per month (sorry, need to exclude you Amsterdam as you are too expensive for this example) depending on the city you live in. Best case scenario, 1000 Euros per month, that is a whopping 36,000 Euros for 3 years – this is money you are throwing-away – you will never get this money back. On the other hand, if you buy the same apartment worth about 350,000 Euros (again, you won’t get it for this price in Amsterdam, but in a smaller city perhaps), you would pay a monthly amount to the bank (via a mortgage). And guess what, the monthly amount will look very similar to your monthly rent and in many cases, even cheaper than your monthly rent. There are different types of mortgages available, but in most cases, your monthly amount will have a principal component and an interest component. The interest component is the throw-away part but the principal component is actually your investment. You will get this back in the form of your house in a few years. While you are still paying the 36,000 Euros out of your pocket in a period of 3 years, only the interest component of this is throw-away and the rest is yours. Oh, another thing – the interest is tax deductible, so you get back some money from the belastingdienst (Dutch tax authority). Yippie! 😊

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Now, let’s say you want to move out of the Netherlands (why-o-why do you want to do that!!! but anyways…..) after 3 years of buying your house. Don’t worry, you have options – you can either rent it out (if you have an outstanding mortgage, you need permission from your bank) or sell it. If the housing market has crashed and your apartment is worth only 330,000 Euros now (worst case scenario) and you still have an outstanding mortgage of 314,000 Euros (350,000 minus 36,000) with the bank. When you sell the apartment, the bank takes the outstanding balance (314,000 Euros) and gives you the rest 16,000 Euros (330,000 minus 314,000). So, you would have paid a net amount of 20,000 Euros over a period of 3 years (36,000 minus 16,000). Despite the market crash, this is still better than the 36,000 Euros you would have thrown-away in case of renting! I have not elaborated on other scenarios like renting it out and I don’t have to show you the numbers if the house prices have appreciated – it will only be more beneficial to you!

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Phew!!! We did some number crunching, but in the end, even a market crash did not impact you so badly… so that’s a relief indeed. I am not a finance guy, so the example taken here is a simple one with a worst-case scenario. If you look at the actual mortgage formulae, the calculations are more complex, but the idea is the same! I have excluded Amsterdam for this example, but the calculations will look similar even for Amsterdam (just append an extra zero to every number you see here 😉)

If you have read the article till here, I am convinced that you are convinced to buy instead of rent 😊

If you need more reasons to buy, here are a couple:

  1. All-time low interest rates – the mortgage interest rates are going down and down and down and doooooown. They are in search of that zero, I guess!
  2. If you are turning 35 in 2021 or later, this is for you 😊. Overdrachtsbelasting is the transfer tax that you as a buyer pay when you purchase an existing property (bestaande woning). Current situation is that you pay 2% of the purchase price. Starting 2021, this will be zero for first-time buyers under the age of 35. The Dutch government wants to encourage young first-time buyers. This can be a substantial saving. You can read all about it here (in Dutch). Overdrachtsbelasting is not applicable if you buy a newly built property (nieuwbouw)

Check out my next blog on the steps to buy an existing property.

The examples and explanation mentioned here are purely from my own experience. The examples are not to be taken as professional advice.

Leave a comment if you have a question. Hit the Like button if you liked the article!