How should you finance a second home?
Every year, one in five Belgians invest their money in a second home. Are you, too, considering investing in more property? Then taking out a mortgage loan may be a better option than drawing on your savings or investments.
The Belgian market for second homes is particularly buoyant. But what actually prompts us to buy a second home?
To start with, Belgians are said to be “born with a brick in their stomach”, i.e., they love home ownership. In addition, various factors in recent years have further reinforced Belgians’ love of real estate. The low return on savings accounts, for example, and stock market volatility. Last year, this often encouraged investors to put their money into more ‘tangible’ alternatives.
Real estate, the preferred investment among Belgians
Although real estate is not entirely risk-free, it continues to be perceived as a more secure investment. Student rooms, garages, holiday homes for rental, weekend homes... are very often considered as secure and profitable investments. In Belgium in particular, in regions where more than 8 Belgians out of 10 buy their second home, real estate prices keep rising. However, before signing the purchase agreement for your second home, you are well advised to take time to examine the best way to finance your investment: using your savings, selling your assets or taking out a mortgage loan.
Savings buffer and return on investment
Depending on your situation, taking out a mortgage loan may be preferable to using your savings. Unless you hold a significant capital sum, it may come in very handy in the event of unforeseen expenses or potential renovations. By having two properties instead of one, you also double the likelihood that you will have to finance such expenses. Also avoid dipping into your investments because investing involves a long-term vision. If you withdraw some of your assets too early, you risk losing potential returns in the long run.
By opting for a mortgage loan, your savings remain intact and the potential return on your investments is maintained. You spread the acquisition costs, take advantage of current favorable rates and receive a federal tax advantage:
- The capital repayments and the premium for any outstanding balance insurance may give you relief for long-term savings of 30% on a maximum amount of 2,310 euros (assessment year 2019), depending on your income level. Please note that you only receive this tax relief if the loan on your main residence has been repaid in full.
- The interest on the loan is fully deductible. You can deduct the interest from the property income, with this deduction entitling you to a tax saving on the highest band of your total income. The income from real estate is determined on the basis of:
- Rental income from leasing to individuals or businesses that occupy the property for professional purposes.
- Land registry income for property not rented or leased to private individuals who occupy it for private purposes.
Outstanding balance insurance and pledging
After reviewing your personal file, the bank may grant you a mortgage loan for a second home without requiring you to purchase outstanding balance insurance. This type of insurance covers the repayment of the balance of your mortgage balance in the event of death. For a second residence - which implies that there is a main residence - it is always possible to put the second property up for sale or to use rent to repay the remaining loan.
If you take out a mortgage for a second home, there are different options for pledging. If you have already partially paid back the loan on your main home, you can, for example, reuse the equivalent of these repayments to finance the purchase of your second home. A mortgage registration is effective for a 30 year-term.