Can I rent out a house with a mortgage?
You're planning to travel for an extended period, your home has been on the market for a while, or it's empty for another reason. There are plenty of reasons to consider renting out a house temporarily. But can you rent out a house with a mortgage? In theory, usually not, but in practice, quite a few exceptions are made. Do you want to rent out your house with a mortgage? Koops Realty will help you explore the possibilities.
Mortgage with owner-occupancy clause
Most mortgages contain a so-called 'owner-occupancy clause.' This indicates that the property can only be used for personal residence. Lenders include this clause on purpose because renting out a property comes with significant risks:
You need to pay the mortgage from the rental income, on top of the living expenses for your own home. The likelihood that you can cover this if the property is vacant is relatively small.
Tenants in the Netherlands have tenant protection and cannot be easily evicted. If you can no longer pay the mortgage and the bank has to sell the property, they must either pay the tenants a settlement or sell the property with tenants in it.
Renting can lead to a decrease in value. Tenants often take less care of their rental properties than owners do. Additionally, owners might delay maintenance on their rental properties to avoid impacting their return too much. As a result, your property may lose value and yield less in a forced sale.
Permission from the mortgage lender to rent
The owner-occupancy clause in your mortgage doesn't prohibit renting; it merely requires you to ask your mortgage lender for permission to rent out your mortgaged property. Unfortunately, this permission is rarely granted. Besides the risks mentioned above, the bank may also cite the housing shortage as a reason: banks have a duty of care and prefer to grant mortgages to first-time buyers rather than allowing someone who already owns a home to rent out another property.
Secretly renting out your property is also not a good idea: if the bank finds out, they can demand you repay the mortgage amount in full immediately. If you can't, you'll have to sell the property, likely leaving you with a residual debt.
Renting out temporarily
The housing shortage, however, is also a reason why a bank might sometimes allow renting with a mortgage. This is the case if a property would otherwise stand empty unnecessarily. It always involves temporary forms of renting, also known as 'interim rental,' where the owner is expected to move back into the property after a certain period. These forms of interim rental are included in rental laws.
Forms of temporarily rent
Properties that are for sale
Temporary emigration
Future personal use
In all forms of temporary rental, the tenant is aware of the situation when signing the rental contract. They know that the rental is temporary and that the landlord can terminate the rental agreement.
Renting out a property for sale with a vacancy clause
The Vacancy Act applies only to properties that are clearly for sale. While this doesn't happen often in the current market, if you can't sell your property, it's possible to rent it out temporarily under a vacancy clause. You can then terminate the rental agreement immediately once the property is sold, as extensive tenant protection doesn't apply to these types of rental contracts. This form of interim rental is attractive to mortgage lenders:
Flexible tenant protection ensures that the bank is not stuck with tenants in a forced sale.
It prevents you as an owner from getting into financial trouble due to prolonged double living expenses.
It combats housing shortages by preventing unnecessary vacancies.
To rent under the Vacancy Act, you need permission from the municipality.
Renting out your property during temporary emigration with a diplomat clause
Are you going abroad for a certain period? It's also possible to rent out your house with a mortgage in this case. You can do this with a fixed-term rental contract with a diplomat clause. The tenant must vacate the property on the agreed date so you can return to it. This is often an excellent option for expats, who are also temporarily in the Netherlands. Banks are usually open to this.
Renting out a property for future personal use
A property purchased with a mortgage for future personal use can also be temporarily rented out. Think, for example, of a single-story home for your retirement. With a special clause in the rental contract for 'urgent personal use,' you can terminate the rental once you want to move into the property yourself. You will still need permission from your lender.
Rental mortgage for long-term rental
But what if you've bought a new home and want to keep your old one for rental purposes? You can't simply rent out your old property with a mortgage indefinitely. In that case, you can refinance your mortgage into a rental mortgage. This is a special mortgage product for houses intended for rental.
Conditions for a rental mortgage
Due to the increased risk for the bank, a rental mortgage comes with several strict conditions and higher costs. For instance, the interest rate is higher than that of a normal mortgage. Also, you can often finance only 70 to 75 percent of the market value in a rented state, and a maximum mortgage amount applies.
Nevertheless, it is often financially attractive to refinance an existing mortgage into a rental mortgage. If you buy a new property with a rental mortgage, the transfer tax is 10.4 percent (compared to 2 percent for existing homeowners and 0 percent for first-time buyers). Renting out your old house with a mortgage saves you a lot of money!
Professional advice from rental experts
What is your situation, and is it possible to rent out your house with a mortgage? The rental experts at Koops Realty are happy to outline the options for you. And if you don't want to deal with any of it, for instance, because you've already moved or are going abroad, you can confidently leave the management of your (temporarily) rented property to us. Ask us all your questions during a free, no-obligation consultation.
