Keep-to-let: renting out your old property
After moving, some homeowners choose to hold on to their old property and rent it out to family, friends or house-hunters. This is known as ‘keep-to-let’. It was very popular until recently, less so now. What does the law say? And what should you watch out for if you’re considering renting your old home?
Who tends to rent out their old property?
This frequently happens when two homeowners move in together after buying somewhere new, but one of them decides not to sell their previous property. In many cases, the previous home is rented out to family, friends or another house-hunter. The properties are usually apartments and terraced houses in cities.
Vacant Property Act
If you want to keep a property and rent it out temporarily while it’s up for sale, you need a permit from your municipality under the Vacant Property Act (Leegstandswet). The permit is valid for a maximum of five years and you can’t renew it.
If you’re not putting your rental property up for sale, some municipalities may still require a permit. This may be the case if you want to rent out several rooms individually.
Is it still worth renting out property?
A major housing shortage has unfolded in the Netherlands in recent years. Not enough new homes are being built, but the number of single-person households has also increased significantly. Despite efforts by various governments, the housing shortage is expected to worsen.
With living space in short supply and house prices surging, many people decided to keep a property and rent it out. But today’s mortgage rates make this a much less attractive option if you have a mortgage on the property.
Keeping your property can be seen as an investment, as you can put your rental income toward a fund for emergencies or later life. However, your rental income may decrease if your property ends up vacant (even temporarily), a tenant decides to stop paying, or your mortgage rate increases.
Maintenance costs can also stack up faster than rental income if you adjust for inflation. And if your property’s value doesn’t increase, your net rental income could decrease in the future.
Seeking your lender’s permission for keep-to-let
If you have a mortgage on a home that you want to rent out, you’ll often need to ask for your mortgage provider’s permission first. There is often a restriction on renting out in your mortgage terms.
While you are allowed in some cases, the terms of your mortgage will change. For instance, your lender may choose to increase your mortgage rate or reduce the amount you can borrow. You can read more about this on the ‘Mortgage for rental property’ page on our website.
Bear in mind that a number of banks don’t offer keep-to-let mortgages at all. But if you’ve paid for the property entirely using your own funds, this doesn’t affect you.
Changes to your home insurance
As well as seeking your mortgage provider’s permission, you also need to check the terms of your home insurance. Renting out means a higher risk for the insurer, so the cover for building and contents insurance and/or liability insurance could change or be cancelled entirely. Of course, this is something you want to avoid.
When are tenants covered by rent protection?
It’s important to make clear arrangements with your tenant in a tenancy agreement. The Fixed Tenancy Agreements Act (Wet vaste huurcontracten) took effect on 1 July 2024, making permanent tenancy agreements the norm. Tenants are now entitled to rent protection as soon as the agreement is signed.
That means you – the landlord – can’t terminate the tenancy whenever you feel like it. This can only be done for reasons laid down in law, such as if the tenant is causing a disturbance or is in rent arrears.
Rent protection can make things complicated if you want to sell the property, as the tenancy agreement still applies even after the property is sold. Rented properties also usually sell for less than non-rented properties.
The law does make some exceptions: you may conclude a temporary tenancy agreement lasting at most two years if you’re renting under the Vacant Property Act, renting to a student or renting to a person who urgently requires housing.
Affordable Rent Act
Taking effect on 1 July 2024, the Affordable Rent Act (Wet betaalbare huur) regulates rents for many properties.
To establish whether the rent is reasonable, the Dutch Rent Tribunal uses a points system (the ‘WWS’) to assess whether the rent reflects the quality of the property.
The Affordable Rent Act has many consequences for the rental market and often results in a lower rental yield for landlords. This has led many to sell their rental properties.
Anticipating your tax bill
The current tax system doesn’t take account of your effective rental yield. Between now and 2028, a flat rate will be used to calculate the tax you pay, regardless of your effective rental yield.
If your rental yield is low, you can declare your actual yield, but you’ll need to provide evidence of it. You’ll then be taxed according to that yield as well as any increases in the value of the property.
A new tax system is expected to be introduced in 2028. You’ll then likely pay tax on your rental income according to the actual rental yield and the increase in value of the property you rent out.
Vacant value ratio
If your tenant is entitled to rent protection (because they have a permanent tenancy agreement, for example), you can enter the value of the rented property in box 3 as lower than the WOZ value (what the property is worth according to your local municipality). The reason for this is that a rented property is worth less than a non-rented property.
The discount on the WOZ value can be up to 27% (in 2023), but this depends on the ratio of the WOZ value to your rental income, known as the vacant value ratio.
The vacant value ratio reduces your tax bill in box 3 (income from savings and investments). Visit the site of the Dutch Tax and Customs Administration to calculate your home’s vacant value ratio.
The Dutch government has cut the vacant value ratio for 2023 onwards. This means you’ll receive a lower discount on your WOZ value than before 2023. The discount ceases to apply altogether if you rent to family, meaning you’ll probably pay more tax in box 3.
Get free advice
For years, keep-to-let was a popular option among homeowners. But changes in the law, higher interest rates and higher tax rates make this a less attractive option.
If you’re considering keeping your property to let, you need to fully understand the financial and legal risks. The best way to do that is to seek advice.
If you’d like to discuss your options and what’s right for your financial situation, our Preferred Banking team would be happy to help you. And the best thing: there are no strings attached.
