New Code of Conduct for Mortgage Lending

On 1 st August 2011 a new “code of conduct” for mortgages came into force: The starting point for determining how much money can be borrowed is the market value of a property. Of course your income is also a determining factor, but in any case, all new mortgages will be limited to a maximum of 104% of the so called market value. For a newly purchased (existing) home, you may also add the 2% transfer tax. In this case therefore, one can borrow 106% of the purchase price.

The new code of conduct also includes new rules for borrowing additional money for renovations and home improvements. The new mortgage code permits the bank to lend you no more than 104% of the increase in value that renovations will bring about. Thus if you need additional money for home improvements (such as a new kitchen or bathroom), you will find that in most cases you will need to use some of your own savings. The 104% doesn't sound too bad on the face of it, but the following example will illustrate the possible effects:

• Property purchase price €250.000
• Buyers' costs, 6% €15.000
• Maximum mortgage €265.000.

So far so good. No cash downpayment needed. But suppose you wish to have an additional €20.000 for renovation purposes, meaning you need €265.000 + €20.000 = €285.000 in all. The maximum finance for the renovation is 104% of the increase in value of the property. Let's suppose 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 allowable under the new code to:

The total amount needed is €285.000, so you will need to find the difference of €5.440 from your own savings!

Under National Mortgage Guarantee (NHG) it is still possible to borrow most of the renovation money, but most banks are currently following the new Code of Conduct rather than the rules of NHG. Your financial advisor will be able to tell you if you qualify for NHG or not and which banks are following the New Code of Conduct rather than NHG.

Luckily, there was also some good news for prospective home owners. On 1^st July it was announced that the transfer tax (“Stamp Duty” in the UK) on property has been reduced from 6% to 2%. This lessens the additional costs when buying a home considerably. This reduction is a temporary measure to give the Dutch housing market a boost and is valid from 15^th June 2011 retroactively, until 1^st July 2012. Maybe a great time to buy right now…