The Municipality of Amsterdam owns the land in Somerparc aan de Amstel and charges ground lease. Anne-Fleur Schotema, financial advisor at De Kredieter explains the financial impact of ground lease when you buy a home here. Read the interview below or watch the video.
Anne-Fleur: ‘The Somerparc aan de Amstel homes are not freehold. The land is owned by the Municipality of Amsterdam. If you buy a home here, the ground is on loan to you. We call the fee you pay for the ground, ground rent fees. These are tax deductible, just like mortgage interest. You can choose to pay the ground rent fees annually or pay these off permanently.’ She explains the advantages and disadvantages of both options.
Annual ground rent fees
If you pay annual ground rent fees, this is usually tax deductible. The annual ground lease payment does, however, reduce your lending capacity for a mortgage at the bank. The price of your home will be lower than if you pay off the ground lease permanently. You can see this price on the price list as ‘purchase price payable by the vendor (v.o.n.) for fee payment with annual indexation’. The level of the annual ground rent fees differs per home and can also be found on the price list.
Paying off the ground lease permanently
A second option is to pay off the ground lease permanently, in which you as buyer pay a one-off amount. An advantage of this is that you are no longer confronted with annual ground lease obligations and indexation. The payoff amount in this form is, however, not tax deductible but can be financed via your mortgage. Even if you choose the payoff option, the ground will always be owned by the Municipality of Amsterdam. You can find this price on the price list under ‘purchase price payable by the vendor (v.o.n.) for permanent ground lease payoff’.
Impact on your lending capacity
Paying off the ground lease impacts your lending capacity. The impact of this, of course, depends on the level of the fee, your income and the mortgage interest.
A calculation example
But what is the impact? Anne-Fleur continued: ‘Here is a rough calculation example to clarify this. In general, you can assume that per €1,000 annual ground rent fee you can loan around €22,000 less from the bank. This is, of course, not written in stone and each personal situation can differ.’
‘I’d recommend that you seek expert advice to gain more insight into your personal financial situation and the impact of the ground rent fee on your lending capacity. Our team of financial advisors at De Kredieter are ready to help you. So, please do feel free to contact us.’