What you need to know before buying a property to let

The Dutch housing market has been attracting investors for years who wish to buy a property to let out. This is hardly surprising: property has traditionally been regarded as a relatively stable investment, particularly when interest rates on savings accounts remain modest. However, there is more to it than simply buying a property and finding a tenant.

Anyone seriously considering purchasing an investment property will soon be faced with a series of choices. What type of property is best suited for letting? What about financing if it is not your own home? The answers to these questions will largely determine whether the investment will be profitable by 2026.

One of the first hurdles is financing. A standard mortgage is intended for a property you’ll live in yourself, but for a rental property you need what’s known as a rental mortgage, which has different terms and usually a higher interest rate. Anyone wishing to apply for a let-to-let mortgage with Bufr will find that the process is often quicker with non-bank providers than with a traditional bank.

How financing a let property differs from a standard mortgage

With a standard mortgage, the lender mainly looks at your income and the value of the property. With a let-to-let mortgage, the expected rental income also plays a role, but this is not always fully taken into account. The maximum loan amount is often lower than for an owner-occupier mortgage, with a loan-to-value ratio that usually ranges between 60 and 80 per cent.

In addition, interest rates are higher than for a mortgage on a property for owner-occupation. After all, the lender is taking on more risk: in the event of payment difficulties, a let property is more difficult to sell than an unoccupied one. Some providers offer interest-only options, which reduce monthly payments but mean you do not pay down the principal.

It is wise to compare several providers. Whilst banks sometimes take weeks to assess an application, non-bank providers such as Bufr.nl often give a decision within one working day. That difference in speed can be crucial if you want to make a quick offer in a tight market.

Regulations you need to know as a landlord

The rules governing letting have been significantly tightened in recent years. The Affordable Rent Act, which came into force on 1 July 2024, has extended the property valuation system to the mid-market segment. This means that a maximum rent applies to a large proportion of rental properties, which has a direct impact on the achievable return.

Furthermore, local authorities have their own tools to regulate the housing market. In cities such as Amsterdam, Rotterdam and The Hague, a ‘buy-up protection’ scheme applies, meaning you cannot let a recently purchased property in certain neighbourhoods without a licence. So always check the local regulations before making an offer.

For tax purposes, an investment property falls under box 3. The value of the property and the associated debt are included in the capital gains tax. How the actual return compares to the notional return used by the tax authorities varies from case to case, so have this calculated in advance by a tax adviser.

What to look out for when choosing a rental property

Not every property is equally suitable as an investment property. Location is the most important factor: properties in areas with a tight rental market and good amenities attract tenants more quickly. Think of cities with universities, major employers or good public transport links.

The state of repair is a second key consideration. A property that won’t require major work over the next ten years offers a more predictable return than one where the roof or central heating boiler will soon need replacing. Always have a structural survey carried out, even if the property looks sound at first glance.

Compact flats with a practical layout are generally more popular in the rental market than large properties with impractical layouts. An estate agent with local market knowledge can assess which type of property is most in demand in a specific neighbourhood and what a realistic rent would be.

The balance between leverage and risk

A buy-to-let mortgage is just one of the ways to finance an investment property. Some investors rely entirely on their own capital, which reduces the return on invested capital but limits risks. Others combine their own funds with a loan to take advantage of the leverage effect.

When making this decision, it is crucial to carry out a stress test on your own situation. What if the property stands vacant for a few months? Can you cover the monthly costs if the interest rate turns out to be higher when you refinance? Calculating these scenarios in advance prevents an investment from becoming a financial problem if things go against you.

Whether you opt for a bank or non-bank rental mortgage, make sure you have a clear overview of the total costs. As well as interest and any capital repayments, you’ll need to factor in maintenance, insurance, management fees and tax. Only once all these items have been factored in can you realistically assess whether a let property will deliver the return you’re aiming for.