The “Five Percent Rule” was first introduced in 2015, when new rules were introduced in the financing of owner-occupied housing.
The rule simply means that you have to finance 5% of the owner’s purchase price yourself. You must therefore not lend to these 5%. However, there are some ways to bypass this rule, read more about it later.
In the past, it was so that you could easily finance your owner-occupied housing by only mortgages and bank loans. But after the new rules were introduced in 2015, you now have to finance 5% of the housing itself.
This rule stems from another rule called the 80-15-5 rule. This rule says that you must max out 80% of the housing with a mortgage, 15% with a bank loan and the last 5% you have to pay yourself.
Why finance 5% yourself?
This decision has been made politically and is probably a consequence of the financial crisis that started in 2007.
Therefore, in the parliament, a new law was passed which contained a number of restrictions in relation to being approved to lend to an owner-occupied dwelling. This is to ensure that the housing market does not become as overheated as before the financial crisis.
It was so that before the financial crisis, it was possible to borrow for the entire financing of an owner-occupied home. And since house prices rose really much over a period of time, you could almost borrow whatever. The bank had an expectation that when just house prices rose, they were secured because they had security in the property.
Therefore, in 2015, this law was made, with measures to make it harder for people who do not have the finances to lend money to an owner-occupied home.
The 5% down payment is therefore both an assurance for the bank that you can find out to save, but also an increased security. In addition, they ensure that demand for real estate is reduced, so that house prices are not artificially driven up.
Can you avoid the payment?
This claim may be circumvented, as the law stipulates that you may not borrow NEW loans to finance the payment.
It cannot hold some from e.g. to set up a bank loan at the bank a few months before buying a home and then withdraw the payment on it.
However, there is an assessment page from the bank as to whether this “fine” will be approved.
Another option is a family loan . A family loan is a loan from a relative or friend. This usually requires the issuance of a debt note which requires a signature from both parties. It is also required that the debt note must be on what you call a demand , which means that the outstanding debt must be able to be repaid at any time. It is possible, e.g. parents to lend money to their children without interest. If interest is required on the loan, these are taxable.
A third option is a private loan. So a consumer loan that you can take out online. The loan purpose of this type of loan is not questioned. So you will therefore easily be able to finance your own payment with this type of loan.
At Walter Mitty we always find the best loan for you and your situation. You can get started with it right here.
Is not always advisable to borrow for the down payment
While there are sensible ways to lend to the 5% down payment, it is not always advisable.
This rule is also made to protect consumers from falling into a debt trap.
Therefore, you must not, under any circumstances, take out a loan for the payment of an owner-occupied housing, if it is financially irresponsible.