Dutch style mortgage: what is a Dutch mortgage in the UK - April Mortgages interest rates explained

A new approach to home financing is garnering attention in the UK with a financial institution offering "Dutch-style" mortgages to new buyers and existing homeowners looking to remortgage.

April Mortgages, a subsidiary of Dutch asset manager DMFCO, was authorised by the Financial Conduct Authority in October to offer loans for 15% deposits, but is now planning to accommodate first-time buyers with 5% deposits by the end of March.

Here is everything you need to know.

What is a 'Dutch mortgage'?

The mortgages differ from traditional offerings, in that they provide fixed-rate loans where interest rates automatically decrease as borrowers make progress in repaying their loans or as their property values increase.

This is a departure from the conventional practice where such adjustments are typically only possible during the remortgaging process.

This flexibility can be particularly advantageous for homeowners, allowing them to benefit from lower rates and improved loan-to-value ratios without the need for additional financial transactions.

Unlike UK high street banks that rely on savers' deposits, April Mortgages plans to finance its loans through investments from pension funds and life and insurance businesses.

In the Netherlands, where the mortgage model originates, it has proven successful through institutions like Munt, DMFCO's mortgage lending arm. Since 2014, Munt has facilitated over 100,000 loans, accumulating to nearly €30 billion (£25.63 billion).

Tim Hague, April's commercial director, said: "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."

April Mortgages will introduce fixed-rate deals spanning durations of five, seven, 10, 12, or 15 years, with rates commencing at 4.99 per cent.

Initially capping lending at up to 85 per cent loan-to-value, April Mortgages plans to extend its services to those with a 5 per cent deposit, targeting first-time buyers by the end of March.

April Mortgages' approach is part of a broader trend in the UK mortgage market, which has in recent times has seen the emergence of various European-style lenders like Perenna, which introduced fixed-rate mortgages with terms of up to 50 years

Unlike traditional lenders, Perenna allows homebuyers to borrow up to six times their salary at up to 95 per cent loan-to-value, presenting a departure from the more typical 4.5 times limit.

The arrival of these mortgage models in the UK market underscores a shift towards more consumer-centric and adaptable lending practices.

Are Dutch mortgages good?

As the UK housing market grapples with challenges such as affordability and access to financing, the introduction of European-inspired mortgage offerings provides a fresh perspective.

Longer-term fixed-rate mortgages are already commonplace in countries like Denmark, France, Germany, and the United States, and some British politicians have even endorsed them as a potential solution to the housing crisis.

They enable buyers to borrow more with a reduced risk of interest-rate shocks, and, unlike the short-term deals of two to five years that are currently common among UK borrowers, extended fixed-rate options offer stability.