What is ground lease (Erfpacht) and does it impact my mortgage?

Ground lease is one of those words that you have actually heard passed by occasionally and as long as you do not have to deal with it, you quickly forget once again. But what if your dream home does have ground lease? Then it's useful to understand how that impacts purchasing your home and closing your mortgage.

What is ground lease?

To understand this, we initially need to understand what ground lease really means.

In easy terms, ground lease is the right to use a piece of land and the associated housing thereon.

The land containing the residential or commercial property stays the residential or commercial property of the ground leaseholder, or owner. These could include the town, a housing association or the Forestry Commission. For this right of use, you pay an annual cost to the owner. That cost is called a canon.

If a seller wishes to sell a domestic leasehold residential or commercial property, he should clearly state that it is leasehold. Therefore, homes for sale sites clearly mention whether it is leasehold or not.

The deed that the notary will prepare when the sale is made (the "deed of transfer") will also specify whether the residential or commercial property is leasehold. And, of course, it will likewise be plainly stated in the purchase contract.

What should I look out for myself if I want to buy a residential or commercial property with a long lease?

If you wish to buy a ground lease residential or commercial property, it's practical to examine the following things carefully so there are not a surprises.

- Is it leasehold for an indefinite or set term? In the latter case, when does the leasehold right expire and is there a right to renewal?
- Do the ground lease terms contain restrictive guidelines, such as on the use or zoning of the residential or commercial property?
- Who is the owner: the municipality, a housing association or a private individual?
- What is the current canon, is it tax deductible and when will it be adjusted?
- Does transfer of the leasehold right need the owner's permission?
- Do you need a leasehold opinion (review of leasehold funding) for funding?

Sometimes a building lease right is also connected to the leasehold right. Then you as the buyer own the residential or commercial property and the ground leaseholder owns the land.

But beware, at the end of the ground lease, the related building lease right also ends. As a result, the ground leaseholder also becomes the owner of the residential or commercial property. In concept, he should then compensate you for the worth of the residential or commercial property.

As you can check out, the rules surrounding ground leases are rather tricky and there can truly be snags here. Therefore, ensure you get correct details from a great mortgage broker and notary to avoid problems during the transfer and in the future.

How does ground lease impact my mortgage?

Taking out a mortgage for a house with leasehold rights can be done simply at the bank, although a couple of things are different from getting a regular mortgage.

With a routine mortgage, you take out a loan on a home consisting of the land your home rests on.

With a mortgage with a ground lease right, you take a loan on the purchase rate of the leasehold right (your right of use). The bank then needs a mortgage on your leasehold right as collateral for the loan.

An annual ground lease payment also affects your optimum borrowing alternatives. The rule is that you can obtain about 20 times the yearly canon less compared to a regular mortgage. If the leasehold canon annually is EUR1,500, your maximum borrowing capability is thus decreased by EUR30,000.

Banks in general are a little less simple on mortgages on leasehold residential or commercial property.

But not to stress. Fortunately, Nobel Mortgages has actually specialized staff who can extremely well help you with this and make your dream (home) a truth.

Tip: Calculate just how much you can obtain for a mortgage.

What about ground lease in Amsterdam?

Each town has its own guidelines relative to ground leases. In Amsterdam, for instance, you can switch to continuous ground lease.

It means that every 50 or 75 years you no longer face a high cost increase (canon) because the land has increased in worth.

In Amsterdam, you can likewise buy off ground lease. You can do this in three ways:

- Buy off everything forever! You pay a redemption charge based on the WOZ worth and area street ratio (a percentage of the WOZ worth and shows the value of the land).
- Redeeming whatever permanently, but just in time. The WOZ value of the year prior to the year you are going to redeem is then utilized. The surrender charge will still be changed for current inflation.
- You pay a yearly charge (canon) based on the present WOZ worth at the time of changing. An increase in land costs in this situation does not affect the yearly amount (canon); it increases only due to inflation.

Finally

In many cases, it may be a good idea to purchase out the ground lease or pick to fix the ground rent at a later date. And sometimes it's much better to just serve out your present ground lease. This choice depends on where you live (in Amsterdam), for how long your current contract runs and, naturally, whether you can manage the commutation charge.

Nobel Mortgages as your individual advisor

At.
Nobel Mortgages.
we more than happy to help you with quality monetary advice and think with you on all problems. We constantly go above and beyond for our clients, genuinely analyzing all alternatives and constantly thinking outside the box when required.

In this way, you make sure to achieve what others can not. That is, we do everything we can to assist you get the very best mortgage that suits you and, obviously, fits your situations and desires completely.

Do you also desire an advisor who looks outside package and really evaluates all the possibilities for you?

Then call our skilled and passionate group quickly. We are offered to you 24 hr a day with the utmost dedication and genuine attention. An email is a snap to info@nobelhypotheken.nl or call or app to 06-54770122.