Will New Dutch-Style Mortgage Boost Property Market In 2024?

14 February 2024 – A new option for home financing may finally be more accessible via a Dutch-style mortgage.

April Mortgages, the company behind the new financing alternative, is offering longer-term fixed-rate loans to new and existing homeowners interested in remortgaging.

What separates a Dutch-style mortgage from other mortgages?

This type of mortgage provides fixed-rate loans automatically adjusted when borrowers’ mortgage balances get lower or as their properties increase in value.

In other words, April Mortgages will automatically swap borrowers to a lower loan-to-value band coupled with a potentially lower rate— all without applying for a remortgage plan.

This unique hands-off method can be more beneficial for proprietors due to reduced rates and upgraded loan-to-value ratios minus any additional fees.

It’s also a massive departure from traditional mortgages, where such adjustments can only happen during the remortgaging process.

Reducing rates to reflect borrowers’ reducing balances is simply a fairer way to treat customers. We feel the UK mortgage market has missed this opportunity to deliver some real benefits back to borrowers. After all, the lower the mortgage balance, the lower the risk, and that should be reflected in the rate.

Tim Hague, April’s commercial director

Consumer-centric offers for longer-term Dutch-style mortgage

With the Financial Conduct Authority’s stamp of approval last October, the firm launched as high as up to 85% loan-to-value packages. Existing homeowners interested in remortgaging were the primary target audience for this initial offering from April Mortgages.

By the end of March, they want to entice new homebuyers with their 5% deposit package. They will also offer fixed-rate contracts ranging from five, seven, ten, twelve, and fifteen years. Rates start at 4.99%.

April Mortgages also guarantees no early prepayment charges. This offer benefits borrowers unexpectedly moving into a new home during the term or repaying a mortgage.

To support this massive financial endeavour, the firm plans to utilise investments from pension funds and life and insurance businesses to finance the loans.

Dutch-style mortgages effective in other developed countries 

April Mortgages is a subsidiary of the Dutch asset manager DMFCO. Since 2014, its parent company has approved 100,000 loans amounting to €30 billion or almost £25.6bn through its mortgage lending division, Munt.

Although the first of its kind in the UK, longer-term fixed-rate mortgages are already commonplace in other countries like Germany, France, Denmark, and the United States. 

However, other companies are starting to take notice of the public’s interest in the Dutch-style mortgage. For example, a similar deal from Perenna, a digital mortgage bank, was the recently announced fixed-rate scheme for up to 20 and 30 years. 

We were the first in the Netherlands – everyone thought we were mad, but now they’ve all copied us. On a 15-year fixed term, a borrower could save £5,127 in interest if their LTV fell from 85% to 60% during the term.

Tim Hague, April’s commercial director

A Dutch-style mortgage enables borrowers to access higher loans with a lower risk of interest-rate shocks. Furthermore, longer fixed-rate mortgages offer stability compared to the usual short-term deals for UK borrowers.

The consumer-centric scheme is even being lauded as a prospective solution to the UK housing crisis. As of now, interested borrowers can access this Dutch-style mortgage through brokers.

Our Opinion

This new type of mortgage is a very interesting proposition. The fact that the rates automatically fall as you pay off the mortgage or your property increases in value is brilliant.

It’s what customers want, because it means as the risk for the bank reduces their costs reduce. When we come to remortgage our current home we will definitely look at this type of mortgage.

So what does this mean for the UK property market? Well, it could bring down mortgage costs, because established UK lenders will want to compete with the new kid on the block. Whether they will bring out a similar offering immediately will have to be seen.

If consumers flock to the Dutch company to take out mortgages, then it’s likely they will. But we think that initially they will try to convince customers with lower mortgage rates. If that will be enough in the long run is doubtful though.

Of course, all this is speculation and will also depend on what the economic situation is. If inflation falls, then it’s more likely that interest rates will fall and as a result mortgage rates.

At the moment inflation stands at 4%, despite fears it will rise again. While this is much lower than the double figures we had last year, it’s still higher than the 2% target of the Bank of England (BoE).

The forecast at the moment is that the BoE will hold the rates at the current level, 5.25%, until the end of the year. Then a gradual lowering of the base rate is predicted.

So while it’s dependent on inflation rates and the actions of the BoE, this new Dutch-style mortgage could give the property market a boost this year.