What are Dutch-style Mortgages?

As of April 2024, there is a new type of mortgage available to UK homebuyers – the Dutch-style mortgage. This type of mortgage could provide a fairer way of financing properties and the financial risk is reduced over time, but how do they compare to other types of mortgage available in the UK? Join me as I take a look at Dutch-style mortgages, their pros and cons, and their potential impact on the UK housing market.

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What is a Dutch-style Mortgage?

A Dutch-style mortgage is a longer-term fixed-rate mortgage in which the interest rate is automatically lowered as more of the mortgage is paid off. Say, for example, you buy a house for £200,000 and borrow £150,000 from your mortgage lender, the LTV (loan-to-value ratio) is 75%. Once the mortgage has been partly paid off and the debt is now £140,000, The new LTV is lower at 70%. If the mortgage provider can offer a cheaper interest rate based on this new lower LTV, they will automatically reduce the interest rate without the borrower needing to remortgage. This type of mortgage is currently only offered by one mortgage provider in the UK, April Mortgages. Their Dutch-style mortgages also have longer term lengths than usual – up to 15 years – and do not include early repayment charges.

Pros and Cons of Dutch-style Mortgages

Dutch-style mortgages seem advantageous to homebuyers who have built up some equity in their property, but there are some drawbacks too – here are some pros and cons to Dutch-style mortgages.

Pro – no early repayment charges (ERCs) if you sell your property during the mortgage term or just want to make overpayments to clear your debt sooner.
Pro – there is no need to remortgage to take advantage of lower interest rates as they will be automatically reduced over time, resulting in lower interest over the entire mortgage.
Pro – a fixed-rate mortgage where the interest rate actually falls offers borrowers the best of both worlds, as the interest rate cannot go above a certain amount but it can reduce over time too.
Pro – Dutch-style mortgages could make home ownership more accessible for first-time buyers.
Pro – borrowers are incentivised to pay off their mortgages faster, leading to more equity.

Con – you can’t port the mortgage to a new property, although you could pay off the mortgage in full with no early repayment charge and obtain a mortgage with the same provider for a new house.
Con – April Mortgages do not currently offer Buy-to-Let mortgages.
Con – there is a risk of negative equity if the value of the property decreases.
Con – the interest rate offered upon the initial lending may not be that competitive when compared to other mortgages offered by other lenders.
Con – borrowers with CCJs, bankruptcies, repossessions, debt management plans and IVAs are not currently eligible for Dutch-style mortgages.
Con – at the time of writing, Dutch-style mortgages are not available for properties less than 2 years old, ex-local authorities properties e.g. council houses, flats in blocks of more than 10 stories, studio flats or those under 35 square metres.
Con – April Mortgages charge an early repayment charge if the borrower remortgages their property with a different mortgage lender or product.
Dutch-style mortgages are currently only offered by one provider, meaning there is a limited choice of mortgage products.

How do Dutch-style Mortgages Compare with Traditional UK Mortgages?

There are different mortgage products available to UK homebuyers, such as fixed-rate mortgages, flexible mortgages, tracker mortgages, variable-rate mortgages, and more. The flexible mortgage is the main competitor of the Dutch-style mortgage, as it offers similar benefits like longer fixed rates, no ERCs, and potentially uncapped overpayments

. Flexible mortgages can offer other benefits too, such as payment breaks and the chance to borrow back any money that has previously been overpaid. Different lenders will offer different kinds of flexible mortgages, so it’s worth shopping around and finding out what deals are available to you. A variable rate mortgage in which the interest rate can vary or a tracker mortgage that is tied to the Bank of England base rate could both be advantageous when compared to the Dutch-style mortgage but still present some risks.

Potential Impact on the UK Housing Market

Dutch-style mortgages could make it easier for first-time buyers to get on the property ladder, and protect them against the chance of rising interest rates increasing their payments. At this moment in time, however, interest rates are quite high, so this could affect the uptake of fixed-rate mortgages and Dutch-style mortgages. The Bank of England is making efforts to reduce inflation which does mean keeping interest rates high, so this could be the case for at least the next couple of years. Borrowers in the UK are more exposed to the risks of high interest rates when compared to other countries in Europe and worldwide, where long-term fixed-rate mortgages are more popular. As the interest rate falls, Dutch-style mortgages could become more popular. In the Netherlands, property investors have been able to build substantial property portfolios thanks to the increased cash flow and flexibility of this type of mortgage.

If more homebuyers opt for a Dutch-style mortgage, it could increase demand for properties as fewer people would need to rent their homes. This could in turn lead to higher property prices, and less demand for rental properties could drive rental yields down. This may result in a change in property investment strategies, with more investors focusing on buy-to-flip methods, which would be a fundamental shift in market dynamics. It’s worth remembering that only one mortgage provider is offering Dutch-style mortgages at the moment, and they do have their drawbacks too, so uptake has been minimal, and it is unlikely that the above changes will take place anytime in the near future.

Is a Dutch-style Mortgage a Good Choice?

As with any new mortgage product, always remember to do thorough research and ask a mortgage broker or financial advisor for their input. Dutch-style mortgages have many benefits to homebuyers but there are drawbacks too, so they might not be suitable for you depending on your financial situation.

Are you interested in finding out more about property investment in the UK? Join me, Liam J Ryan, and other property investment gurus at one of Assets For Life’s FREE property investment events – click here to find out more or sign up.

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Liam Ryan

Liam J Ryan is a Forbes-featured, 8-figure property business entrepreneur, best-selling author, mentor, host, and co-founder of Assets For Life.

More About Liam

What are Dutch-style Mortgages?

What is a Dutch-style Mortgage?

Pros and Cons of Dutch-style Mortgages

How do Dutch-style Mortgages Compare with Traditional UK Mortgages?

Potential Impact on the UK Housing Market

Is a Dutch-style Mortgage a Good Choice?

Are you interested in finding out more about property investment in the UK? Join me, Liam J Ryan, and other property investment gurus at one of Assets For Life’s FREE property investment events – click here to find out more or sign up.

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