Dutch-Style Mortgages: A Guide for Homebuyers

Dutch-style mortgages are a relatively new concept for UK borrowers, offering long-term fixed-rate deals where your interest rates are automatically reduced if your loan-to-value (LTV) improves as stipulated. Unlike traditional mortgages, where borrowers often need to refix, and sometimes remortgage, to access better rates, Dutch-style loans reward borrowers by adjusting rates downward automatically if the relevant LTV criteria are met.

This article outlines how Dutch-style mortgages work, their key features and benefits, and what to consider if you are thinking of applying for one.

What Is a Dutch-Style Mortgage?

Originating in the Netherlands, Dutch-style mortgages have a defining feature: your interest rate automatically decreases as your LTV ratio improves. In the UK, borrowers often refix every 2 or 5 years or sometimes remortgage to get better rates. With a Dutch-style mortgage, the rate cuts happen without refixing or remortgaging.

For example, if you start at 85% LTV and move down to 75% LTV, your mortgage arrangement will shift you to a lower mortgage interest rate automatically. This reflects a fair approach; as you become less risky to the lender, your rate is lowered accordingly.

How Do Dutch-Style Mortgages Work?

Imagine buying a £200,000 home with a £150,000 mortgage (75% LTV). If the starting rate is 5%, but you repay down to £140,000 (70% LTV), your rate automatically drops if there is a cheaper rate available at that level. This happens without refinancing; you ride the rate ladder down as your equity grows.

Key Features:

• Long Fixed Terms: UK lenders are now offering fixed periods of 5, 7, 10, 12 or 15 years, mirroring the Netherlands' 20-30 year fixes [1]

• Automatic Interest Reductions: Your rate falls as your LTV improves – no remortgaging needed.

• No Early Repayment Charges: You can overpay or exit early with no penalties, a feature that sets these mortgages apart.

• Interest-Only Options: While early UK versions are mainly repayment-based, some newer Dutch models might offer some more flexibility, such as interest-only phases.

• Daily Interest Calculations: Interest is calculated daily.

Lenders argue this system is fairer: as you reduce their risk, they reduce your rate.

Benefits of Dutch-Style Mortgages

1. Interest Savings Over Time

A Dutch-style loan could save thousands over the life of a mortgage. One estimate shows a borrower moving from 85% to 60% LTV could save around £5,127 in interest thanks to automatic rate drops [2]

2. No Need to Refix Regularly or Remortgage

Traditional UK mortgages often require refixing every few years and sometimes remortgaging to get better deals. Dutch-style mortgages eliminate these cycles, saving borrowers fees and hassle.

3. Long-Term Stability with Flexibility

You lock in protection from rate hikes but can still overpay or exit early with no fees, something rare in traditional long-term fixed-rate products.

4. A Fairer Model

The structure rewards financial progress. As your LTV falls, your interest rate does too, without negotiation. This transparency and fairness is part of the appeal.

5. Proven Success Abroad

In the Netherlands, where mortgage interest is also tax-deductible, this model has been widely adopted and proven stable. While tax relief does not apply in the UK, the underlying model operates in the same way.

Considerations and Drawbacks

1. Limited Availability (So Far)

Currently, only April Mortgages offers Dutch-style loans in the UK, having launched in early 2024 for remortgages, with purchases soon after. Access is only via brokers for now.

2. Long-Term Commitment

You may be locking in for 10–15 years. Even with no exit fees, make sure a long-term product suits your plans.

3. Rate Risk in a Falling Market

If market rates drop sharply, your fixed rate might become less competitive. However, the absence of exit penalties means you can still remortgage if needed.

4. Eligibility and Deposit Requirements

At launch, April Mortgages required a 15% deposit (85% LTV) but was planning to allow 5% deposits for first-time buyers by spring 2024 [3]. Rates started around 4.99%, competitive with other fixed deals [4].

5. New Product Risk

April Mortgages is backed by Dutch firm DMFCO, which has issued over 100,000 mortgages in the Netherlands and lent nearly £25.6 billion since 2014 [5]. Still, as UK regulation and borrower expectations differ, ensure you fully understand the terms, especially what happens after the fixed term ends.

How to Apply for a Dutch-Style Mortgage

1. Explore Your Options

As of now, April Mortgages is the only UK provider. Keep an eye out for others as the product gains traction.

2. Use a Specialist Broker

Since these products are broker-only, a mortgage advisor familiar with Dutch-style deals is essential.

3. Prepare Financial Documents

Have your credit history, income proof and deposit ready. Lenders offering high-LTV Dutch-style loans will carry out thorough checks.

4. Apply Through the Broker

The application process is similar to a traditional mortgage, with property valuations and affordability assessments but the product structure may require extra explanations.

5. Plan for the Long Term

These mortgages work best for borrowers planning to stay put. Check if the loan is portable or what your options are when the fixed period ends.

Dutch-Style vs Traditional Mortgages

Feature

Dutch-Style Mortgage

Traditional Mortgage

Interest Rate Changes

Decreases automatically as LTV drops

Fixed or variable, requires refixing or remortgaging to access better rates

Fix Length

5–15 years common, up to 30 years in the Netherlands

2–5 years most common (74% of UK fixed-rate borrowers) [6]

Early Repayment Charges

None  

Often applies during fixed period

Overpayment Flexibility

Full overpayment allowed

Usually capped at 10% annually

Refixing Frequency

Not required

Common every 2–5 years

Conclusion

Dutch-style mortgages bring a refreshing alternative to the UK housing market. They offer long-term stability, potentially lower costs over time and flexibility, while rewarding borrowers for reducing their debt risk. With automatic interest rate reductions, no early repayment charges and simplicity in structure, these mortgages aim to be fairer and more borrower-friendly.

Though currently offered by just one lender, the early 2024 launch by April Mortgages shows promise. Backed by over £25 billion in Dutch lending experience, the model has scale and credibility. As the product matures in the UK, more lenders may follow [7].

In short, a Dutch-style mortgage is a fixed-rate that gets cheaper over time, a compelling idea for homeowners who want a loan that rewards progress. If that sounds like your financial style, it is well worth exploring this innovative option.

FAQs

Q. What is a Dutch-style mortgage and how does it differ from a traditional UK mortgage?

A. Dutch-style mortgage is a long-term fixed-rate mortgage where your interest rate automatically decreases as your loan-to-value (LTV) improves. Unlike traditional UK mortgages, which often require refixing and sometimes remortgaging to access lower rates, Dutch-style mortgages adjust the rate downward as you repay your loan or your property's value increases.

Q. Can I still remortgage or exit a Dutch-style mortgage early?

A. Yes, one of the major benefits of Dutch-style mortgages is that they typically come with no early repayment charges (ERCs). This means you can overpay or switch to another deal at any time without facing a financial penalty, offering flexibility that is uncommon in most other fixed-rate mortgages.

Q. Are Dutch-style mortgages available for first-time buyers in the UK?

A. Yes, although availability is limited. As of 2024, April Mortgages was the only provider offering Dutch-style mortgages in the UK. Initially, they required a 15% deposit, but they have indicated plans to allow 5% deposits for first-time buyers, making the product more accessible to those entering the property market.

Q. What happens to my mortgage rate if mortgage rates fall?

A. If market rates drop significantly, your Dutch-style fixed rate might become less competitive. However, since there are no early repayment penalties, you are free to remortgage to a more attractive deal if it becomes available, minimising rate risk despite the long-term fix.

Q. Are Dutch-style mortgages suitable for people planning to move home within a few years?

A. They are generally better suited for long-term borrowers due to their fixed-rate structure. However, the absence of exit fees and the possibility of mortgage portability (depending on the lender) means they could still be viable for some movers. Always check the product's portability options with your broker.

Q. How can I apply for a Dutch-style mortgage in the UK?

A. Applications must go through a specialist mortgage broker, as these products are not available directly to consumers. The requirements will be as usual, including proof of income, credit history, deposit amount and affordability assessment. It is essential to work with a broker familiar with Dutch-style structures for tailored advice.