Mortgage changes 2019

A lot of things have changed compared to last year, such as the maximum amount of mortgage you are allowed to borrow, taxes and tax deduction, the mortgage guarantee and more. But let’s kick off with the mortgage interest.

Mortgage interest rate
For years, the mortgage interest rate has been historically low now with percentages like 1,7% for 10 year fixed at the moment. The big question is: will it stay so low?

Well, like Mark Twain allegedly said “It's difficult to make predictions, especially about the future”. However, there are no indications the rate will go up. The mortgage interest rate follows, generally speaking, the economic development. A strong grow could lead to higher rates and vice versa.

In 2018 we had such a grow in Europe but recent forecasts indicate a somewhat disappointing economic trend. World trade falls back. There are also concerns about Italy's budget plans. Then there is the danger of a tough Brexit and the French president Macron is under pressure due to the sticky protests. In this uncertain environment there is a growing likelihood that the ECB will use other means to keep long-term interest rates low and stimulate the economy. Against this background, it’s likely mortgage interest rates will continue to remain low for some time and only increase from 2020 onwards.

Maximum mortgage 2019
Each year, the Nibud (National institution for budget planning) determines the so called “living quote”. This is a percentage of your income which can be spend on your mortgage. In most levels it’s increased with 0,5%, so most of us can borrow a bit higher amount. About €3.500 to €5.000 for the mid incomes and from €7.000 for the higher incomes. It’s quite remarkable that incomes between 50k and 65k are scooped out from the (slight) rise. The reason why is not given by the Nibud.

National Mortgage Guarantee (NHG) up to € 290,000
The upper limit of the National Mortgage Guarantee will be substantially increased in 2019. This will go from € 265,000 to € 290,000. That’s an increase of € 25,000. That is very welcome because house prices have risen sharply in recent years. But in Amsterdam and Utrecht the average house prices are already way above this limit. The NHG ensures that you will not be left with a residual debt if you have to sell your house at a loss as a result of unemployment, incapacity for work or a divorce.

NHG premium drops to 0.9%
Even more good news: the premium for the National Mortgage Guarantee is reduced by 0.1%. A home buyer pays 0.9% for this 'insurance' in 2019. With the maximum mortgage (guarantee) of € 290,000 you therefore pay € 2,610. That is a lot of money but usually you get a lower interest in return and that will make a big difference in the monthly costs. Moreover, the costs for the NHG are tax deductible.

Loan to value (LTV) remains 100%
The maximum mortgage amount you can borrow depends also on the value of the house. This is called the ‘loan to value’ (LTV for short). Not so long ago you could borrow more than the value of the house, up to 108%. In the past years, the LTV level has been brought back to 100%. There are voices to limit the LTV to 90 or even 80% of the house value (like in Germany), but for the time being it stays 100%. So you can finance your home for the complete amount, but you still have to pay some additional costs such as transfer tax, valuation, notary, advice etc. yourself. Take into account an extra cost of 4-6% of the house value. There is an exception for people who also invest in energy-saving facilities when buying a house. They may borrow up to an LTV of 106%, provided they fully use this additional loan for energy-saving measures. Think of an investment in wall, floor or roof insulation, HR ++ (+) glass or solar panels.

Mortgage interest deduction lower
In the past you were allowed to deduct the mortgage interest against the maximum tax rate of 52% (if your income was eligible for this of course). But since a few year, this rate is gradually being downgraded. If your income is more than € 68,507, you pay 51.75% tax over it

Unfortunately, you can now only deduct the mortgage interest at 49%. And from next year that rate will go down even faster, by no less than 3% per year. So in 2020 it will be 46% and it continues until in 2023 the limit of 37% has been reached. That is where it stops. In compensation, it is expected that the income tax in the highest bracket will also be reduced. But when and with how much is not yet clear.

Income tax lower but basic VAT going up
The income tax rates are lowered for 2019, so that's good news. Unfortunately, other costs such as the low-VAT tariff (from 6 to 9%) and other small taxes and levies are rising. The low VAT tariff is applied to basic goods and services, like groceries, water, medicines, books, hairdresser, shoemaker, art and also services like painting, plastering, insulating and wallpapering your (bought) home.

As an compensation, the income tax is lowered, especially in the mid-income section. There you pay 2,75% less taxes. A consequence of this is that you also have less interest deduction of course. These are the new tax brackets:

Gross income 2019 2018
Up to €20.142 36,55% 36,55%
Up to €68.507 38,10% 40,85%
From €68.507 51,75% 51,95%

Notional rental value (Eigenwoningforfait, EWF) lowered
Another small tax windfall, the notional rental value (EWF) is slightly lowered. The EWF is a percentage of the value of your home that you must add to your income. Your income is therefore a bit higher and you have to pay tax on that. The housing value is determined annually by the municipality where you live and is also called WOZ value. Most people pay 0.65% of the WOZ value in 2019, which is a decrease of 0.05%. So if your house is worth € 200,000, you have to add € 1,300 to your income (instead of € 1,400) and you pay taxes on that. The expectation is that the EWF percentage will drop further and further. Unfortunately, the WOZ value is rising.

Expected development of EWF percentages
House value 2018 2019 2020 2021 2022 2023
Up to € 12.500 0% 0% 0% 0% 0% 0%
€ 12.500 – € 25.000 0,25% 0,25% 0,20% 0,20% 0,20% 0,15%
€ 25.000 – € 50.000 0,40% 0,35% 0,35% 0,30% 0,30% 0,25%
€ 50.000 – € 75.000 0,55% 0,50% 0,45% 0,40% 0,40% 0,35%
€ 75.000 – € 1.060.000 0,70% 0,65% 0,60% 0,50% 0,50% 0,45%
From € 1.060.000 2,35% 2,35% 2,35% 2,35% 2,35% 2,35%
If your home is worth more than € 1,060,000, the EWF is 2.35% over the excess. This is also called "villa tax".

WOZ value rises: but every disadvantage has its advantage
"The average WOZ value of dwellings will increase by 7.5 to 9.5 percent next year", writes the Valuation Chamber in a letter to the State Secretary for Finance . This concerns the WOZ value of 2019, which relates to the market development between 1 January 2017 and 1 January 2018.
If so, it means that you have to pay more tax via the so-called Eigenwoningforfait (EWF).

But as the late Johan Cruijff said: "Every disadvantage has an advantage". And that also applies here. Because if your house has become more valuable, you may have to pay less mortgage interest. This goes as follows: As a homeowner you often pay a risk surcharge on top of the (standard) mortgage interest. This surcharge is determined by the ratio between the market value of the house and the height of the mortgage. In the beginning this ratio is often 100%. The value of your home is €200,000 and you also borrowed the same amount.

But after a few years you have repaid a bit and your home may have increased in value. Suppose the residual debt is 195,000 and the house value is 218,000, then the ratio has already gone back to 90%. This means you end up in a lower risk class and the mortgage interest rate can go down. Whether this is possible with your mortgage, depends on the conditions and the risk classes that your lender uses. Your mortgage advisor can help you with this.

Phasing out the law “Hillen”: Limiting tax benefits for low or no mortgage
This is another curious Dutch law regarding the EWF taxes. If you do not have a mortgage, you would only have to pay the EWF. The “Hillen law” prevents that: No mortgage interest deduction, then also no EWF.

However, from 2019 this law will be phased out by 3.33% per year in 30 years. So suppose your EWF is now € 1,300 and you do not have a mortgage interest deduction, you can omit 96.67% of that amount. Next year that is 93.33%, the next year 90% and so on ... It ultimately means that in 30 years you will have to pay the full amount of EWF, even if you do not have a mortgage interest deduction.