Construction deposit: money for renovations

The key points in short

A bouwdepot (construction deposit) is a financial arrangement you can use when buying a new-build home or renovating an existing property. A bouwdepot mortgage is a type of financing that lets you borrow the money you need for the purchase or renovation. This way you can realise your dream home or renovation without having to put all the money on the table straight away.

1. What is a bouwdepot and how does it work?

If you want to build or renovate a property, you can make use of a bouwdepot. You open an extra account linked to your mortgage, which you use to pay the renovation costs.

When you purchase your new home, the financing amount is placed into a bouwdepot, since you don't need the full amount all at once. It's essentially a pot of money you use to pay your contractor. You only pay interest on the amount you've actually withdrawn.

You can draw on the loan at different stages of the renovation. If you choose to renovate an existing property, you can use the loan in a similar way. In that case, you pay your contractor from the bouwdepot for the work carried out in your home. One common requirement is that the renovation must result in a structural improvement to the property.

2. Bouwdepot mortgage

The bank sets it up so you can pay your contractor, tradespeople and suppliers. Remember to keep all invoices and submit them to your provider, so they can verify that you're actually using your bouwdepot to purchase or improve your property. You also need to do this to be eligible for the tax benefits.

How much mortgage you can take out depends on the type of renovation you're doing. Since 2018, the mortgage you take out when buying a home may not exceed 100% of the property value after the build or renovation.

If the renovation is used for energy-saving measures, the loan may be up to 106% of the property value. An appraiser determines the value before and after the renovation and produces a valuation report. If there's money left in the bouwdepot after two years, it is repaid against your mortgage.

In short, to calculate your bouwdepot, you can look at the difference between the value after renovation and the current value of the property.

3. Bouwdepot interest

The provider will pay interest on the balance in the bouwdepot, known as depotrente (deposit interest). The depotrente is normally equal to your mortgage interest rate. Sometimes the provider may pay you a lower interest rate than the mortgage rate you're paying. The difference between the interest received and the mortgage interest you pay can be deducted from your taxes through mortgage interest deduction.

4. Applying for a bouwdepot

When you apply for a bouwdepot, there are a few steps to go through. First, of course, you need to put together a specification for the renovation, meaning what amount you expect to spend on building or renovating. After that, we always recommend speaking with an adviser to explore your options.

You then have the property appraised to determine its value after the renovation. If everything works out, you can submit an application to the provider. You'll usually hear back within 10 days about how much you can finance through a bouwdepot.

Frequently asked questions

What is a bouwdepot?

A bouwdepot is a separate account where you keep the money borrowed from the bank for a new-build home or renovation. You use this account to pay the building or renovation costs. The loan is locked in for a maximum of 2 years.

How large can the amount in a bouwdepot be?

You cannot borrow more than 100% of the property value, or 106% if you're using the financing for energy-saving measures.

What is the interest rate on a bouwdepot?

The bank usually pays interest on the bouwdepot balance. Sometimes, however, the bank pays 1% less than the mortgage rate, though you can deduct this difference from your taxes.