Buying a Second Home and the Mortgage

The most important points at a glance

How do you find a reliable advisor for expert mortgage advice? We've put together five tips to help you get guaranteed quality mortgage advice.

1. Buying a second home as an investment

When you buy an extra home, it's often for financial reasons. For example, you may have unexpectedly come into a large sum of money through an inheritance. In that case, investing in a second property can be financially attractive.

If you choose to buy a second home and rent it out, you generate income from the rent. The return depends on a number of factors and is best discussed with an advisor.

Keep in mind that if you take out an additional mortgage to finance the property, you'll be paying interest on it. So there are costs involved too. That said, investing in real estate often yields more than a savings account.

2. The mortgage for a second home

When you buy a second property for rental, recreation, or as an investment, you need to arrange financing. Only a small portion of Dutch people with a second home buy it entirely with their own funds. The majority take out a (second) mortgage to finance (part of) the second property. The financing options vary and depend in part on the financing of your first home.

Financing a second home is often more difficult than a first. Mortgage providers will set stricter requirements for your finances. You will also often need to contribute some of your own funds to make the financing work. That's why a second home isn't within reach for everyone, and there are a number of factors to consider. Always discuss the options with an advisor.

Some banks offer a special mortgage for recreational properties. SNS Bank and BLG Wonen are among the providers where you can take out such a mortgage.

The recreational property does need to meet various requirements. The property must be located in the Netherlands, must not be movable, and must be designated as a recreational property in the local zoning plan. Rental options are also restricted with a recreational property mortgage, and you must finance at least 30% of the property's value with your own funds.

3. Buying a second home using home equity

There are several ways to finance a second property. In addition to a second mortgage, you can also choose to use the equity in your first home. In that case, the mortgage is increased so the second property can also be financed. With some mortgage providers, you'll need to list the second property as additional collateral for the mortgage.

4. A second home to rent out

If you decide to buy a second home to rent out, there are many things to keep in mind. A second home isn't cheap. Where you might pay 2% interest on your mortgage debt for your first home, a second mortgage or a buy-to-let mortgage will often be double that.

For a second home worth €200,000, partly financed with a mortgage of €140,000 at 4% interest, you'll pay €5,600 per year in mortgage interest. If you can then rent that property out for €850 per month, the rental income adds up to €10,200 per year. With no other costs, the second home would net you €4,600 per year.

Unfortunately, a second home comes with quite a few other costs. The second property falls into Box 3 for tax purposes, which means you pay a wealth tax on it. You pay this tax only on the property value minus the mortgage.

In this example, that means you pay tax on the €60,000 (€200,000 minus €140,000) financed with your own funds. At a rate of 1.34%, you'd pay €804 per year in wealth tax. That leaves €3,796 from the €4,600 profit, but you're still not done. As a homeowner you also deal with local taxes, and as a landlord you're responsible for any maintenance costs.

In short, the annual profit from renting out the property can turn out lower than you initially expect. It's therefore important to research what it will actually yield and what the pitfalls of renting out are before making an investment.

5. Mortgage interest deduction for a second home

When you buy a second home and take out a second mortgage, you are not entitled to mortgage interest deduction as you are with your first mortgage.

The mortgage interest deduction only applies to the home you actually live in. This makes it a more expensive mortgage, since the government treats it as a consumer loan. On the other hand, any rental income you earn from the property is not taxed, which can make it financially attractive.

6. The mortgage for a second home

When you buy a second property for rental, recreation, or as an investment, you need to arrange financing. Only a small portion of Dutch people with a second home buy it entirely with their own funds. The majority take out a (second) mortgage to finance (part of) the second property. The financing options vary and depend in part on the financing of your first home.

Financing a second home is often more difficult than a first. Mortgage providers will set stricter requirements for your finances. You will also often need to contribute some of your own funds to make the financing work. That's why a second home isn't within reach for everyone. To find out what's possible for your situation, you can speak with an independent mortgage advisor.

Some banks offer a special mortgage for recreational properties. SNS Bank and BLG Wonen are among the providers where you can take out such a mortgage. The recreational property does need to meet various requirements. The property must be located in the Netherlands, must not be movable, and must be designated as a recreational property in the local zoning plan. Rental options are also restricted with a recreational property mortgage, and you must finance at least 30% of the property's value with your own funds.

7. The pitfalls of buying a second home

Alongside all the benefits of a second home, there are definitely some things to watch out for. As mentioned earlier, the mortgage interest on a second mortgage is not tax-deductible. There can also be many problems that arise from not doing thorough enough research. This can result in the second home not being what you expected, the mortgage interest turning out higher than anticipated, and renting the property out going less smoothly than planned.

We therefore always recommend speaking with a good mortgage advisor.