# Negative equity and residual debt explained

> Is your house worth less than your mortgage? We explain what negative equity and residual debt mean for you, and the options you have.

https://www.belderbrandt.nl/en/mortgage-advice/negative-equity-and-residual-debt · English

Your house is in negative equity, or 'under water', when it's worth less than the amount you still owe on your mortgage. If you sell in that situation, the sale price won't cover the loan and you're left owing your lender the difference: the residual debt. It's not a fine or a punishment, it's simply the gap between what you owe and what the sale brings in. In the Tilburg region we mainly see this with homes bought with a high mortgage at the peak of the market, or after a divorce where one income can no longer carry the mortgage.

## When does a residual debt arise?

Most residual debts arise from a forced sale, for example after a divorce, long-term disability, unemployment or a foreclosure sale by the bank. But it can happen with a voluntary sale too, especially if you have to move again shortly after buying, for work or health reasons, while the housing market has fallen in the meantime. What makes it doubly painful: on top of the residual debt itself, you also miss out on the home equity you would normally put into your next home.

## Residual debt and taxes: is the interest deductible?

Interest on a residual debt is only tax-deductible if the debt arose between 29 October 2012 and 31 December 2017, and even then for a maximum of 15 years after the sale date. If your residual debt arose after 1 January 2018, the interest is no longer deductible in box 1, the part of the Dutch income tax system that covers income from work and your own home. It's one of those rules nobody is happy about, but you'll want to know it before you work out your monthly costs. When in doubt, always check the current rules on belastingdienst.nl, the website of the Dutch tax authority (Belastingdienst), because schemes like this do change from time to time.

## NHG and the waiver scheme

If you took out your mortgage with the Dutch National Mortgage Guarantee (NHG), NHG can waive a residual debt after the sale, under certain conditions. Among other things, NHG assesses whether you acted 'in good faith' and cooperated fully in limiting the loss. Think of keeping up your mortgage payments, maintaining the home properly and engaging an estate agent to sell it for the best possible price. Those conditions matter: a residual debt is not waived automatically.

## What can you do to prevent or resolve a residual debt?

If you're in negative equity, or close to it, there are usually several routes. Sometimes simply waiting to sell is enough: the housing market in Tilburg moves, and a few extra years can restore the balance between value and debt. You can also look at whether refinancing or making extra repayments is feasible, or at rolling the residual debt into a new mortgage if you do have to move. If you have NHG, always have someone check whether you qualify for the waiver scheme before you sell, because the conditions you have to meet during the sale process itself matter just as much as your situation afterwards. We're happy to work out what's realistic in your case.

**From our experience: No case from our own practice, but a topic we think matters**

The honest answer is that residual debts mainly arose in times when homes were being sold at a loss. In all our years as mortgage advisors, virtually every client has sold their previous home at a profit. So fortunately, we don't have a good example of a client with a residual debt from our own practice. But at some point there will be times again when people have to sell their home at a loss. That's why we think it's important to keep covering this subject and to explain what a residual debt can mean.

## Want to know where you stand?

A residual debt or a home in negative equity feels unpleasant, but you don't have to face it alone. At Belderbrandt in Tilburg we go through your situation with you, work out your options and explain which steps make sense, without any fuss. Feel free to get in touch, no obligation, on 06 52 69 88 22 or Martin@belderbrandt.nl and we'll set up an appointment.