Rising mortgage rates, falling house prices and high costs of renting. So what is wise to do now?
I have done research for you based on the latest developments in the housing market and current interest rate levels in the Netherlands,
For a good comparison, I went back to the beginning of the year where there was significant overbidding when buying a home and where there was a historic low for mortgage interest rates.
Starting point for the comparison is a well-maintained and modern 55m2 flat located in Amsterdam West.
This property was paid € 460.000 at the beginning of 2022. Currently, this property can be bought for €400.000.
Begin 2022
Purchase price € 460.000.
Mortgage rate for a 10-year period was 1.4%.
In mortgage interest, you would pay € 6.440.
Because you are also entitled to a tax deduction for your mortgage interest of €1,460
You pay a net €4.980 in mortgage interest.
End 2022
Purchase price € 400.000.
Mortgage rate for a 10-year period is 4,7%.
In mortgage interest, you would pay € 18.800.
Because you are also entitled to a tax deduction for your mortgage interest of € 6.460,
you pay a net € 12.340 in mortgage interest.
You did manage to buy the property for €60,000 less.
Per year, you lose €7.360 of your benefit from the lower purchase price.
This means that if you live in the house for exactly 8 years, you have not suffered any financial disadvantage from the higher interest rate. If you stay in the property for less than 8 years, this will result in a financial benefit.
If you stay longer than 8 years, the loss will be limited to 2 years, 2 x €7,360 = €14,720 because the interest rate is fixed for 10 years. This is about 3.5% minus compared to the purchase price.
Conclusion
The housing market is nicely balanced.
With higher interest rates, we see lower house prices and vice versa.
Because the Dutch government provides compensation for the mortgage interest to be paid, the higher the interest rate the more the compensation will be, the effects of the current higher interest charges are sufficiently compensated to have no or almost limited financial disadvantage.
Rent versus buying
Isn’t continuing to rent a property a better option than buying at the moment?
If you were to rent the property in our example, you can expect to pay at least €1,750 a month in rent.
You can also expect to face an annual increase in rent. We do not take this into account in this calculation.
If you were to live in the property for 5 years, you would pay in this period € 105.000 in rent.
If you had bought the property you would have paid € 61.700 in interest in these 5 years.
Of course, you also pay for the repayment of the mortgage debt but these are not costs that are paid and give you no benefit. By repaying, you reduce your mortgage debt .
So in 5 years you will pay over € 43.300 more in costs if you keep on renting.
Even if house prices were to fall 10% you have no financial disadvantage compared to renting.
Conclusion
If you are going to rent for the long term, buying a house will be more financially beneficial.
However, if house prices collapse, continuing to rent would be the best option. However given the tight housing market in The Netherlands, I do not see any signs of a housing market collapse at the moment.
Also, if you have only just moved to the Netherlands, the advice is to rent first so you can better judge whether you like living in the Netherlands and what would be the ideal location for you to live.
Only when you are convinced to stay longer in the Netherlands is it wise to further explore the option of buying.
