You cannot simply add the estimated equity in your current home to your buying budget. For your next purchase, what matters most is the amount actually left after selling costs and repaying the mortgage. The Belastingdienst also uses its own tax calculation, which may affect your mortgage interest deduction.
Keep these four amounts separate
When moving from one home to another, the word equity is used for several different amounts. This can quickly make calculations unclear. Keep these four concepts separate:
- Gross equity: the estimated value or sale price of your home minus the outstanding mortgage. This is an initial indication, not an amount you can safely base an offer on.
- Net sale proceeds: the sale price minus the selling costs and everything that must be repaid when the mortgage is settled at completion.
- Available personal funds: the part of the net proceeds you can actually use for the new home. Without a bridging loan, this money will normally only become available when ownership of your old home is transferred.
- Home equity reserve: the taxable equity that the Belastingdienst takes into account for the mortgage interest deduction on your next home.
These amounts may be the same, but they do not have to be. For your offer and financing plan, the net sale proceeds and when they become available are particularly important.
How to calculate the net sale proceeds
In a straightforward situation, use this formula:
Sale price − selling costs − mortgage to be repaid = net sale proceeds
Selling costs may include the selling agent, the mandatory energy label, a sale-related valuation and advertising costs. Use quotes or a realistic budget for these expenses. One fixed percentage for every home is too broad an estimate.
Also request a provisional mortgage settlement statement from your lender. The debt shown in your online mortgage account is not always exactly the amount the notary must repay on the completion date. The notary’s completion statement will ultimately show the amount actually left over.
A simple example
You sell your current home for €500,000. The selling costs are €10,000, and a €300,000 mortgage must be repaid through the notary.
€500,000 − €10,000 − €300,000 = €190,000 in net sale proceeds.
In this straightforward situation, €190,000 is available for your next purchase once ownership of the old home has been transferred. You could use this money for the purchase price, buying costs, renovations or a financial buffer.
More equity does not automatically mean you can borrow more
Using personal funds means you need a smaller mortgage. This can reduce your monthly payments and total interest costs. However, the equity does not automatically increase the amount a lender is willing to lend you.
Your maximum mortgage depends on factors including your income, the interest rate, other financial commitments and the appraised value of the new home. The main rule is that you cannot borrow more than 100% of the home’s value, apart from statutory exceptions. You will therefore usually need to pay buying costs above the home’s value from your own funds.
Prepare a complete budget before making an offer. Include not only the purchase price, but also buying and selling costs, any renovations, moving costs, overlapping housing costs and an appropriate reserve. A large amount of equity offers little reassurance if almost all of it is needed to complete the purchase.
What if you buy first and sell later?
Until ownership of your old home has been transferred through the notary, the expected proceeds remain tied up in the home. A bridging loan can temporarily make a portion accepted by the lender available to you.
The bridging loan is repaid from the proceeds after your old home is sold. The lender considers factors including the home’s value and sale status, as well as your ability to cover the temporarily higher costs. Until ownership of the old home has been transferred, you may have payments for the old mortgage, the new mortgage and the bridging loan.
If your home has not yet been sold, the lender may apply a safety margin. The size of this margin and the applicable term vary by provider and product. Have the specific bridging loan amount calculated instead of counting the full estimated equity yourself.
Also allow for a disappointing sale
Suppose the home in the example sells for €470,000 rather than €500,000. With the same selling costs and mortgage, the net proceeds would be:
€470,000 − €10,000 − €300,000 = €160,000.
That is €30,000 less than budgeted. If you had already allocated the full amount to the new home, you would need to cover the shortfall with other personal funds, spend less on renovations or adjust the financing. Calculate this scenario before making an offer and include an appropriate financing condition.
The additional borrowing rule concerns mortgage interest deduction
The additional borrowing rule does not require you to spend the full sale proceeds on your next home. If you choose to keep part of the money as a reserve and borrow more as a result, the interest on part of that loan may not be deductible.
For the tax calculation, the Belastingdienst looks at the owner-occupied home debt for your old home. This is the part of your loans that, for tax purposes, relates to the purchase, improvement or maintenance of your own home. This amount may be lower than your total mortgage, for example if part of a loan was previously used for a car or another personal expense.
As a result, the money left over through the notary may differ from your home equity reserve for tax purposes. Have your loan history checked if your mortgage was not used exclusively for the home or if the additional borrowing rule has applied before.
The example from a tax perspective
Suppose the entire €300,000 mortgage to be repaid qualifies as owner-occupied home debt. The net sale proceeds and home equity reserve would then both be €190,000.
You then buy a home for €600,000 and have €20,000 in buying costs that count in this simplified tax example. The maximum owner-occupied home debt would then be:
€600,000 + €20,000 − €190,000 = €430,000.
If you borrow €500,000 and use only €120,000 of the proceeds, the interest on €70,000 would not be deductible in this simplified situation. The bank may still be able to provide the loan if it meets the other lending criteria. The additional borrowing rule does not determine how much the bank is willing to lend. It does determine the portion of the loan on which the interest may be tax-deductible.
Under the current rules, a home equity reserve remains relevant for three years. Previous sales, tax partners, different ownership shares, a separation or an existing home equity reserve may change the outcome.
Check this before making an offer
- Have the expected sale price estimated conservatively.
- Budget for the actual selling costs and request a provisional mortgage settlement statement.
- Have the bridging loan amount accepted by your lender calculated.
- Check whether you can absorb overlapping housing costs and lower sale proceeds.
- Have your home equity reserve and maximum deductible owner-occupied home debt calculated for tax purposes.
- Decide how much of the proceeds you want to contribute and how large a buffer you want to keep.
The equity is not taxed separately when you sell the home. However, if you keep the proceeds as cash or other assets, this may have consequences for box 3. The exact outcome depends on your personal assets and timing. Use a mortgage calculation for the financing and seek tax advice on the additional borrowing rule and tax consequences.
