What is a Dutch mortgage? Lender to offer new UK home loan where the rates automatically reduce over time

A DUTCH-owned mortgage lender is launching fixed-rate products with interest rates that reduce as you pay off the loan.

April Mortgages has started offering remortgage products from 4.99% available for those who fix for between five and 15 years.

It will launch mortgages for first-time buyers in March.

But, unlike with other lenders, as homeowners pay off their loans, or if their property increases in value, April will automatically switch them into a lower loan-to-value band and lower rate.

Normally, homeowners can only do this when remortgaging.

April has also axed early repayment charges for people looking to move house or pay off chunks of their mortgage.

However, you will need to pay an early repayment charge if you want to remortgage before the end of your deal period.

An early repayment charge is a penalty you have to pay to your mortgage lender.

Meanwhile, new customers will need to pay out a £195 application fee and £995 completion fee.

April is currently offering mortgages starting at up to 85% loan-to-value, with plans to extend this to 95% “in the coming months” for those with a lower deposit.

Tim Hague, commercial director, said he believed the Dutch-style mortgages were a “fairer way” to approach lending.

April is currently offering homeowners remortgaging on a 15-year deal with an 60% loan-to-value rates at 4.99%.

Those remortgaging with an 85% loan-to-value would get a rate of 5.29%. These rates go down as you pay off the loan.

For example, if you started with 85% loan-to-value on a £250,000 loan to be paid back over a 15-year fixed term, your monthly repayments would start at £401.94 on the loan and £1,102.08 in interest.

By month 35, your loan-to-value would decrease to 80% and your interest rate to 5.19%.

Monthly repayments on the loan would be £472.93 but £1,017.64 in interest – £13.46 less in overall payments.

By month 135, you would be paying £34.70 less a month in total in loan and interest payments than if you had stayed on the original 5.29% interest rate.

Over the entire 15-year fixed term, a borrower would save £5,127 in interest and pay off £1,330 of the home loan if they met all payments and their loan-to-value fell from 85% to 60% over that time frame, compared to them staying at 85% and the original 5.29% interest rate.

April is not the first lender in recent months to shake up the mortgage market.

Perenna launched fixed-rate mortgages of up to 30 years last September, claiming the move would see borrowers less affected by interest rate fluctuations.

Are Dutch-style mortgages worth it?

Nick Mendes, from broker John Charcol, said the obvious advantage to April’s offering is that the interest you pay drops as you pay off your mortgage.

He added some might prefer the stability of fixing for longer and that the lack of early repayment charges for those wanting to move house was a bonus.

Meanwhile, David Hollingworth of L&C Mortgages said April’s new offering could be beneficial for buyers with a smaller deposit and those looking to lock in lower interest rates further down the line after moving bands.

But, he said, while April’s mortgage products don’t charge you an early repayment charge if you want to move homes, you would still be charged if you wanted to remortgage before the end of the deal period.

As always, remember to compare both rates and fees before taking out a mortgage deal.

For example, while April’s 75% LTV rate is set at 5.09%, First Direct is currently offering a home loan with a maximum 75% LTV at 4.54%.

This is fixed over ten years and comes with a £490 product fee, according to Moneyfactscompare.co.uk.

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