One in six households with a mortgage has (partially) financed their home by taking out a mortgage from a family member, friend or acquaintance. De Nederlandsche Bank (DNB) investigated this. People often do this to borrow more money than they can get from a regular mortgage provider. According to DNB, this practice could further increase property prices.
In 2020, 645,000 households used this type of private or family mortgage, usually in combination with a mortgage from a bank or insurance company. The total value of family mortgages is 70 billion euros. This is approximately 10 percent of the total mortgage debt in the Netherlands.
More popular than the cheering sound
1.2 billion was added to family mortgages in 2020. This is more than was donated in anniversary kegs, namely 700 million. The cheer was an amount that could be donated tax-free to purchase a home. This year, the cheering style has been removed, and now if you donate a large amount of money to someone to buy a house, you have to pay gift tax.
The rules that apply to a regular mortgage also apply to a family mortgage. In this way, you can get a mortgage loan interest deduction. However, the interest rate must be in line with the market. If the interest rate is too low, the tax office will classify the mortgage as a gift.
Interest refunded
In practice, it often happens that parents return (some) of the attention they received to their children. You can donate a maximum of 6,035 euros per year to a child tax-free. A recent government report on wealth inequality in the Netherlands calls this a “remarkable tax structure.”
Everyone with a family mortgage has, on average, a total mortgage of almost €100,000 more than someone with just a regular mortgage. This also means they can offer more for a home, and DNB says this could affect prices.
richer parents
They also have a more expensive home, with an average WOZ of €376,000 instead of €326,000 for people with a normal mortgage. They are richer on average and also have richer parents.
“This is not surprising, as parents must have assets in order to give a mortgage to the child,” DNB said. According to DNB, banks and insurers should better consider whether a person also has a family mortgage “to avoid a price-enhancing effect.”
Source: NOS
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
