Mortgage interest relief and the halal mortgage: the real cost
No relief, transfer tax twice, and materially less borrowing capacity. What the statute and the regulators actually say, with the sources attached.
·7 min read
A halal mortgage costs more in the Netherlands than a conventional one, and the reason is the law rather than the provider. Two tax rules work against it. Mortgage interest relief applies only to interest, and an interest-free structure by definition pays none. And transfer tax can fall due twice, because the financier takes ownership of the property first. The Dutch financial regulator wrote in 2021 that products of this kind have not got off the ground in the Netherlands.
Why the relief does not apply
Dutch law lists deductible costs exhaustively. Article 3.120(1) of the Income Tax Act 2001 names three: interest on debts forming part of the qualifying home loan, the costs of raising those loans, and periodic payments under ground lease, superficies and beklemming. That is the whole list.
A murabaha profit margin, an ijara rent component and a diminishing musharaka fee appear on none of it. They are not interest, and the underlying contract is not a loan of money. Nine words in subsection (a) are the entire obstacle.
For comparison, what a conventional borrower does get in 2026: interest is deductible at a maximum of 37.56%. That cap only begins to bite above an income of € 78,426; below it, the ordinary bracket rate applies. Against it stands the imputed rental value, 0.35% for homes assessed between € 75,000 and € 1,350,000.
One thing to be straight about: no court ruling, policy decree or tax-authority position states specifically that a murabaha margin is non-deductible. The conclusion follows from the text of the statute, and the regulators proceed on that basis in their own publications. It has not been settled in case law.
The second hit: transfer tax
In most halal structures the financier buys the property and ownership passes to the occupant later, or gradually. Each transfer of ownership is in principle a taxable event.
Article 13 of the Legal Transactions (Taxation) Act offers one way out: if the first buyer resells within six months, the second acquisition is taxed only on the increase in value. We checked whether that window was extended for 2026. It was not.
Six months is not a realistic window for home financing that runs twenty or thirty years. If the financier holds title for years, both transfers are fully taxable.
Even inside the six months the problem does not resolve cleanly. The charge that survives is the financier's, and it does not pay the 2% owner-occupier rate. Both the reduced rate and the first-time-buyer exemption require the acquirer to use the home as their main residence, which an institution cannot do. It pays 8%.
| Conventional mortgage | Interest-free structure | |
|---|---|---|
| Deductible | Interest, max. 37.56% | Nothing — margin and rent are not in art. 3.120 |
| Imputed rental value | 0.35% of assessed value | 0.35% of assessed value |
| Transfer tax | Once | In principle twice |
| Buyer's rate | 0% first-time, otherwise 2% | 0% or 2% on the buyer's share |
| Financier's rate | Not applicable | 8%, as it is not a main residence |
| Legal form | Right of mortgage | Huurkoop, arts. 7:101–7:117 Civil Code |
What it does to how much you can borrow
The sharpest effect is not on the monthly payment but on borrowing capacity. The Temporary Mortgage Credit Regulation carries two tables of financing-burden percentages: table 1 for credit whose interest is deductible, and table 3 expressly for portions whose debit interest is not.
The gap is wide. On a qualifying income of € 50,000 at a rate between 4.5% and 5.0%, table 1 allows 24.6% of income to go to financing costs. Table 3 allows 17.4%. That is almost 30% less room — roughly € 1,025 a month against € 725.
One caveat we cannot remove. Table 3 refers to portions whose debit interest is not deductible. Whether it applies at all to a structure that carries no debit interest has not been established. No source we found answers the question.
What the regulators themselves say
None of this is new. A 2008 DNB Occasional Study, written jointly by DNB and AFM staff, identified both obstacles already. Note its status: an Occasional Study reflects the authors' views, not formally those of the central bank.
The AFM was considerably blunter thirteen years later, in its Trendzicht 2022 outlook published on 4 November 2021, and repeated it the same month in its own English-language report:
Islamic mortgages are expensive compared to conventional mortgages due to tax implications. Due to the absence of interest, an Islamic mortgage does not give the possibility of deducting mortgage interest from tax. Moreover, transfer tax has to be paid twice. (In 2021, these restrictions still apply).
The Ministry of Finance put it more cautiously on 7 December 2021, and more precisely: where there are multiple transfers of ownership, more transfer tax may be due, and all of this will in all likelihood make the product more expensive than conventional mortgage forms. That may is well chosen — it depends on the article 13 window.
In April 2024 the housing ministry deferred the decision to a next cabinet. That cabinet replied in October 2024 that the obstacles stem largely from the operation of tax rules, and that it does not intend to amend them. It has been quiet since.
What about NHG?
The NHG limit for 2026 is € 470,000, or € 498,200 where energy-saving measures are financed alongside, at a guarantee fee of 0.4%.
Whether NHG can be granted on an interest-free structure is a question nobody has answered publicly. We searched the 2026-1 Conditions and Standards for halal, islamitisch, rentevrij, renteloos, sharia and huurkoop and found no occurrence of any of them. The conditions do assume a first-ranking right of mortgage and monthly interest and principal, which makes a structure without those hard to fit. But that is our inference from the text, not a position taken by NHG.
Why huurkoop is legally something else
These structures fall under huurkoop of immovable property, governed by Book 7 of the Dutch Civil Code, articles 7:101 to 7:117, with a separate division for residential property.
For the financier that is a weaker position than a right of mortgage. It is the owner rather than the holder of a limited right, and so lacks the summary enforcement route of article 3:268. On arrears it must terminate the contract, and article 7:116 forbids automatic termination: notice of default is required, a minimum period of two months, and an invitation to discuss the arrears. On termination there must be a full settlement, returning the equity the buyer has built up.
That favours the occupant and disadvantages the financier, which is part of why providers have been cautious. One detail says a great deal: article 7:114 requires the notarial deed to state which part of each instalment goes toward interest due. The statutory form assumes interest exists.
What we do not know
Three things we leave open, because we could not establish them.
- Whether huurkoop of a dwelling is credit within the meaning of the Financial Supervision Act. The definition in article 1:1 refers to movable property, while article 1:20 appears to presuppose the opposite.
- Whether case law exists. We could not search the judgments database and therefore cannot claim there is none.
- What a Dutch provider actually charges as margin or rent. Until that is public, nobody can make an honest comparison in euros, and so we do not make one.
That is why this article quotes no total figure. The difference in borrowing capacity can be evidenced; the difference in final price cannot.
Further reading: how the structures differ, why the Netherlands lags behind the United Kingdom, and what to look for in a provider.