Mortgages and the mortgage interest deduction are constantly in the limelight.
In the first place, everyone is waiting to see what the new government’s decision regarding the mortgage interest deduction will be.We don’t anticipate any changes in the next few years.However, if the decision is taken to make changes in the short term, we expect that a broad transitional scheme will apply to existing mortgages. Another option could be that the mortgage interest deduction would only continue to be allowed at the 40-42% rate. When arranging the financing of a new home, we recommend calculating the costs based on this tax benefit.
Maximum Loan Amount
The mortgage interest deduction isn’t the only issue in the limelight; the Netherlands Authority for the Financial Markets (AFM) is also interested in the mortgage-to-income ratio.The AFM has proposed also making the mortgage amount dependent on the composition of the borrower’s family. A larger family would result in a lower mortgage. Politicians won’t support this proposal. However, other measures that limit the maximum mortgage amount (particularly for so-called “maximum value mortgages”) are expected to come into effect in the first half of 2011. A maximum value mortgage is normally designated as such whenever the amount of the mortgage is greater than the purchase price of the home. The following rules will be implemented to address maximum value mortgages:
- A mortgage cannot exceed 112 percent of the purchase value of a home. Currently, many mortgages are still being provided for 125% of the purchase value
- The percentage in excess of 100% must also be paid off within a term of seven years or be covered by accumulated capital.This rule will not apply for mortgages that are concluded pursuant to the National Mortgage Guarantee Scheme.
Current Interest Rates
With regard to the mortgage interest rate, we can report that the capital market interest rate is historically low.For some, this has resulted in lower rates.The lowest rates at the moment are 2% for a variable interest rate mortgage and 4.8% for a 20-year fixed rate mortgage. However, there are conditions attached to these rates.
National Mortgage Guarantee Scheme
National mortgage guarantee scheme. Until 2011, national mortgage guarantees can be obtained on mortgages up to € 350,000. Based on this guarantee, banks give a mortgage interest reduction of around 0.5% per year. If no further measures are enacted, this limit will be lowered to € 265,000 on 1 January 2011. The higher limit is expected to be extended, but a final decision is yet to be taken.
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