Keep to let: renting out your old property

In 2021, the Dutch Land Registry carried out a survey of homeowners who are holding on to their old homes to rent them out. This is more common when two homeowners move in together after buying somewhere new, but one of them decides not to sell their previous property. This peaked in the financial crisis of 2009 to 2012 when homeowners struggled to sell their old property. Afterwards, the number of keep-to-let properties fell, but has now been on the rise again for a few years. About 4% of property purchases in recent years have involved renting a former residence to family, friends or other people. These are mostly apartments and terraced houses in urban areas.

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, in some municipalities you still need a permit, for example if you want to rent out several rooms individually.

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 government efforts, the housing shortage is expected to worsen over the years to come. With living space in short supply and house prices surging, it really is worth considering keeping your property and renting it out. But today’s high interest rates might make this a less attractive option if you’ve got a mortgage on the property. Keeping your property can be seen as an investment, with the returns you get through rent payments helping you to save up for a rainy day.

However, the amount you make in rent could leave much to be desired 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 the property’s value doesn’t increase, the net rental income could decrease in the future. Read more about investing in property in our article ‘Investing in residential real estate in 2024: stricter rules’.

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. Sometimes you are allowed to rent out, but the terms of your mortgage will change, such as through a higher mortgage rate or a reduced borrowing amount. You can read more about this on our website on the ‘Mortgage for rental property’ page. A number of banks don’t actually offer a keep-to-let mortgage. But if you have paid for the property entirely using your own funds, this naturally doesn’t affect you.

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 coverage for building and contents insurance and/or liability insurance could change or be cancelled entirely. Of course, this is something you want to avoid.

It’s important for you to make clear arrangements with your tenant in a tenancy agreement. If it’s a permanent tenancy agreement, the tenant will be entitled to rent protection. In that case, you can’t simply terminate the tenancy at will. 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. In fact, the tenancy agreement still applies throughout the sale process, and selling a rented property usually results in a lower return on the sale.

That’s why most people enter into a temporary tenancy agreement for no longer than two years (for a single-family house or apartment) or five years (for a room). The agreement then automatically ends after the specified term. It’s really important for you as the landlord to confirm the end of the agreement to the tenant in writing, between one and three months in advance. You must give them written notice in good time to ensure the tenancy agreement is terminated effectively.

One recent development is the Dutch Parliament’s adoption of the Fixed Tenancy Agreements Act (Wet vaste huurcontracten), which came into force on 1 July 2024. This legislation means that landlords of independent dwellings and rooms can typically only offer permanent tenancy agreements. A temporary tenancy agreement is now only allowed under specific conditions, such as student rentals.

When it comes to your tax return, 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 the rental income, known as the vacant value ratio. The vacant value ratio allows you to pay less tax in box 3 of your tax return. You can check the vacant value ratio of your property on the Dutch Tax and Customs Administration website (in Dutch).

The Dutch government has updated the vacant value ratio for 2023 onwards, reducing the discount on the WOZ value and abolishing the discount entirely if you rent to family. This means you will probably pay more tax in box 3.

The current tax system does not take into account the actual income you make from renting out. The tax you pay on assets in box 3 will change in the coming years. Between now and 2026, a flat rate will still be used to calculate the tax you pay. This means that your assumed return is currently determined in advance, so it doesn’t matter what the amount actually is. A new tax system is expected to be introduced in 2027, and you will likely pay tax on the actual rental income and the increase in value of the property you rent out. 

Keeping hold of your property and renting it out could well seem attractive, but the return ultimately depends on several factors. Before you make any decision, you need to thoroughly understand all the financial aspects that renting your property out entails. So make sure you do your homework first. If you’d like to discuss your options and what’s best for your financial situation, our Preferred Banking team would be happy to help you

Read our other articles about home and mortgages