- Blog
Buying a home in the current overstrained Dutch housing market carries significant risks, created primarily by the extreme tightness in larger cities such as Amsterdam and the ever-rising prices.
Many buyers, including first-time buyers, out of haste, the fear of missing out, and sometimes even desperation, take great financial risks to convince the seller to choose them as buyers or award them the house.
We discuss the main risks below so that you think carefully before making a particular, choice.
Overbidding and funding gap
Due to the high bids that are often well above the asking price, you quickly pay more than the house value. Because banks finance a maximum of 100% of the market value (appraised value), the difference must be paid with your own savings.
So overbidding means that you offer more than the asking price, but banks finance a maximum of 100% of the appraised value of the house. The amount you bid above the appraised value must be paid directly from your own savings or the excess value. You cannot co-finance this money in your mortgage.
In addition to overbidding, you often have to pay buyer’s fees such as transfer tax and notary out of your own pocket.
Property ‘under water’ (residual debt)
As the housing market cools and prices fall, the mortgage may become higher than the value of the house. A sale will then result in residual debt.
A home is “underwater” when the mortgage debt exceeds the current market value of the home. This means a potential residual debt when sold.
If you just keep living there and paying your monthly expenses nicely, there is often no need for action, although additional repayments are always a possibility. If you are planning to move, there are solutions such as co-financing residual debt or using your savings.
Removal of financing reservation
Many buyers bid on a house without a financing reservation in order to increase their chances of getting their dream home. But if the mortgage does not come through, you can face a huge penalty of often 10% of the purchase price. This can add up to €50,000 for a €500,000 house.
What actually is a reservation of financing?
Subject to financing falls under the resolutive conditions you agree with the selling party. These are reasons under which you can possibly abandon the purchase of a house.
Basically, you just agree that you may still find out if you can get a mortgage for the home on which you made the winning bid.
In the purchase contract, you and the selling party agree on the period within which the resolutive conditions apply. A good rule of thumb is to assume six to eight weeks. Within this period, almost any mortgage lender can indicate whether they want to give you a mortgage.
Construction risks
Again, to be stronger in the face of sometimes numerous bids, many buyers also forgo a structural inspection. As a result, hidden defects, such as foundation problems, can lead to repair costs that can sometimes be substantial.
What exactly is a conditional building inspection?
Subject to structural inspection means that the buyer may rescind the sale if a technical report shows that the house has serious defects.
The purchase contract often includes a “construction amount (e.g., €10,000) for immediate repair costs. If the repair costs are higher, the purchase may be rescinded free of charge. Its purpose is to prevent the buyer from being surprised by high, unexpected maintenance costs, especially in older homes.
High housing costs
With the combination of higher interest rates and high purchase prices, monthly costs are rising significantly. Because mortgage rates have risen, people are paying more interest costs on the same mortgage amount. Interest rates for 10-year fixed are significantly higher than during the period of low interest rates.
VvE risks
When buying apartments, the check on the Owners’ Association (AoE) is sometimes skipped, which can lead to surprises with high costs for overdue maintenance. Think of things like:
- When an association does not meet or save, you bear the risk of overdue maintenance immediately after purchase.
- As a buyer, you become responsible for part of a current maintenance loan.
- Incomplete building insurance can lead to major financial losses.
So always make sure you have a check done on the CoE before buying an apartment!
Advice in today’s tight market
Engage a buying agent to determine fair value, always have a structural inspection, and make sure you have enough of your own money to cover the financing gap.
Mortgage2Go
Have you found your first dream home by now or are you busy looking?
And before bidding, would you like more information about the mortgage, good advice and immediate certainty about what you can borrow maximum?
How nice it is then when you already have the financing pretty much in place!
This is where Mortgage2Go comes in:
With a pre-checked mortgage, your financing is almost fully secured, and you can be confident that you’ll be able to afford your dream home.
Within two business days of your accepted offer, your financing is then complete and definitively approved! Quickly start an application or schedule an appointment.
