Foreclosure Value (Executiewaarde)

The key points in brief

Foreclosure value (executiewaarde) is a term you have probably come across when looking at a new home. What does it mean exactly, and why does it matter to you? The foreclosure value says something about the collateral for the bank in exchange for the mortgage loan it provides. It is important to be careful with financing above the foreclosure value, since the provider will charge an additional fee for the extra risk. However, the term executiewaarde is no longer commonly used and is no longer included in a property valuation report.

1. What is foreclosure value?

The foreclosure value is derived from the market value, also known as the free market value. The foreclosure value is the amount a property would fetch in a forced sale. A forced sale happens when you can no longer afford the mortgage payments. It is the value a surveyor assigns to a property. Because there is urgency in a forced sale, you have to account for a (considerably) lower selling price. In the past, the foreclosure value was included in the valuation report and therefore influenced your maximum mortgage application. Since 2013, the market value is used instead, which gives a more realistic picture of the housing market.

2. Calculating the foreclosure value

You can calculate the foreclosure value of a property by starting from the market value and applying a well-known rule of thumb. In general, a property sold at foreclosure will fetch around 80-90% of the market value. That means a property with a market value of €200,000 would typically sell for around €160,000-€180,000 in a forced sale. The foreclosure value becomes relevant when you can no longer meet the monthly payments and the provider wants to sell the property quickly to recover as much of the mortgage loan as possible.

There are three different foreclosure values:

• Foreclosure value for owner-occupied use
• Foreclosure value in rented state
• Foreclosure value vacant and free of tenancy

The different foreclosure values depend on how the collateral is being used. The owner-occupied foreclosure value is the most common. This is the variant for collateral used by the owner themselves. The value in rented state applies to properties rented out to others. The value vacant and free of tenancy refers to a property that is empty.

3. Financing against foreclosure value

When calculating a mortgage loan, providers generally work out the percentage of the foreclosure value you want to finance. Mortgages that finance 100-125% of the foreclosure value are known as top mortgages and carry a relatively high risk. If the property needs to be sold quickly, there is a real chance it will fetch less than the outstanding mortgage. For this reason, this type of mortgage is rarely if ever offered today. Want to know where you stand? Calculate how much you can borrow based on your income.

4. Foreclosure sale

If a payment arrears situation drags on, the mortgage provider may proceed to a foreclosure sale of the collateral, meaning the property. This means the home is sold under pressure and with urgency, and will therefore often fetch less than the market value. There is no fixed period of arrears after which the provider must proceed to a foreclosure sale. Usually the bank looks at each individual case and decides how to handle it. A foreclosure sale is typically the last resort, only pursued when the bank sees no other solution.

You can avoid a foreclosure sale by alerting the bank promptly. If you can no longer afford the mortgage payments, talk to the bank. The bank generally prefers to find a solution too, because a forced sale is not in its interest either. The bank also takes a loss in a foreclosure sale. The provider may advise you to sell the home yourself, since a voluntary sale always yields more than a foreclosure sale.

Frequently asked questions

What is foreclosure value?

The foreclosure value is the value of the home if it has to be sold quickly and under pressure.

Is foreclosure value important for my mortgage?

Since 2013, the foreclosure value is no longer included in the valuation report and therefore has no impact on your mortgage application.

How do I calculate the foreclosure value of my home?

The foreclosure value is generally 80-90% of the market value of your home.

How much of the foreclosure value can I borrow?

A top mortgage means you can finance 100-125% of the foreclosure value. Because of the high risk for the bank, this type of mortgage is rarely offered anymore.

When does a bank proceed to a foreclosure sale?

With a prolonged payment arrears situation the bank may proceed to a foreclosure sale of your home. However, this only happens as a last resort and there is no fixed period after which the bank takes this step.