From the invention of gin to the introduction of the CD and DVD, the Netherlands has made numerous contributions to civilisation in art, science, technology, and engineering.
Over the centuries, the Dutch have also been pioneers in finance, laying the foundations for modern stock markets and introducing the first European banknote. Now, their latest innovation is a new “Dutch-style” mortgage that has recently arrived in the UK.
The most eye-catching feature of this new type of home loan is that the lender will reduce the interest rate charged as you pay off the mortgage and reduce your loan-to-value (LTV).
Read on to find out more about how this “Dutch-style mortgage” works, and whether it could be an interesting future choice for you.
A “Dutch-style” mortgage sees your interest rate fall as you pay off the loan
April Mortgages is new to the UK market and is part of the large Dutch firm DMFCO, which has offered 100,000 loans in the Netherlands through its mortgage brand Munt.
The lender currently offers remortgages for those with at least 85% LTV in their home with plans to offer deals to first-time buyers later in 2024.
While April Mortgages is authorised and regulated by the Financial Conduct Authority (FCA), you must apply for a mortgage with them using a broker such as Altura.
The most notable feature of April Mortgages’ offering is that the interest rate reduces over the term of the loan as you pay off the mortgage.
“Over time you will reduce the size of your loan, and this means our risk reduces,” the lender says. “So, we think it’s only fair that we automatically reduce your interest rate as you pay off your mortgage and the value of your loan drops in comparison to the value of your property at the time you bought it.”
For example, if you bought a property for £400,000 and borrowed £300,000, your LTV would be 75%. If you reduce their mortgage debt to £280,000, your new LTV would be 70%.
Assuming that, at that point, April Mortgages has a cheaper rate available at 70% LTV than at 75% LTV, it will automatically switch you on to the lower rate – you do not have to do anything.
Once you reach 60% LTV the rate will remain the same until the fixed term ends and then they can transfer to a new product.
April Mortgages says you can fix your repayments for an initial five, seven, 10, 12 or 15 years.
An example of how you could save money over time
The idea behind this “Dutch-style” mortgage is that your interest rate – and consequently your repayments – will be reduced as your LTV falls.
Here’s an example.
On a 15-year fixed term, you would save £5,127 in interest and pay off £1,330 more of the capital if your LTV fell from 85% to 60% during that time. This equates to the rate falling from 5.29% to 4.99%, versus staying the same.
Source: The Telegraph
While it’s clearly a benefit if your interest rate is reduced as your LTV falls, critics say that this is something you can do anyway, by going through a remortgage each time your fixed-rate deal ends.
There may be some paperwork and costs for remortgaging, but an independent broker can find you the most competitive terms for your needs each time your deal expires. This could potentially save you more money over the term of your mortgage than the rate reducing by a small percentage under a “Dutch-style” scheme.
In addition, with most commentators expecting interest rates to reduce in 2024 and beyond, there may be more competitive mortgage deals available with more traditional lenders.
No early repayment charges
Another notable feature of the April Mortgages deals is that the lender does not impose an early repayment charge (ERC) if you sell your home during the product term, or you make overpayments using your own money.
This differs from most lenders who will level an ERC if you pay off some or all of your mortgage during the fixed-rate period.
April Mortgages says: “We think that practice is unfair. If you sell your home, you can pay off your mortgage without a fee. And if you got a bonus, an inheritance, won the lottery, or you just saved some money, you can make additional payments without any charge.”
Get in touch
If you’re interested in finding out more about whether this “Dutch-style” mortgage may be suitable for you, please get in touch.
Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
