Dutch-Style Mortgages

Dutch-style mortgages are a new type of home finance that have just arrived in the UK. They're aimed at borrowers who value certainty and flexibility, but are they right for you? Read on to find out more about these trailblazing products.

What is a Dutch-style mortgage?

A Dutch-style mortgage is a home loan with an interest rate that falls over the course of the term as the homeowner pays off the debt. When the borrower enters a lower loan-to-value (LTV) band, they will automatically be switched to a lower rate if there’s one available.

For example, if you were to take out a £200,000 mortgage with a £10,000 deposit, you would have an LTV of 95% and likely start out on a relatively high interest rate. However, when you have paid off another £10,000 of your mortgage debt, your LTV would decrease to 90%. On a Dutch-style mortgage, this means your rate will automatically fall in line with the LTV.

Other features of this product type

These mortgages have several other standout features such as:

• Longer term lengths: They are available with terms of up to 15 years, longer than what many high street mortgage providers are able to offer.
• Uncapped overpayments: Most high street lenders only allow you to overpay 10% of your mortgage debt off each month, but there is no cap on Dutch-style loans.
• No early repayment charges: There are no ERCs if you sell your property during the mortgage term, although they will apply if you remortgage.

Many of these features are commonplace for mortgages in countries like the Netherlands, hence why these products are referred to as Dutch-style mortgages.

Eligibility criteria

The eligibility criteria for a Dutch-style mortgage in the UK is as follows:

• Deposit requirements: If you are using one of these mortgages to buy a home you will need at least 5% deposit. For remortgages, you will need 15% equity.
• Credit history: Applicants with bankruptcies, repossessions, debt management plans and IVAs will not be approved. Other credit issues can be considered, but CCJs or defaults will trigger a rejection if they occurred in the last 36 months.
• Property: Must be in England or Wales and cannot be a new build. The valuation caps are between £75,000 and £2 million (or up to £2.5m in London).
• Maximum loans and terms: Term lengths are up to 40 years. The most you can borrow is £1 million, but up to £2 million is considered on a case-by-case basis.
• Employment: Self-employed applicants need a minimum of two years’ trading history. Those in full-time employment can declare any bonuses or commission.

Only one lender is offering Dutch-style mortgages in the UK. It is important to speak to a broker before you apply to find out what alternatives are available.

How much you could borrow

The only lender in the UK currently offering Dutch-style mortgages calculates affordability at 4.5 times your annual salary for house purchases. Those taking out a like-for-like remortgage can borrow a maximum of 5 times their annual household income.

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What rates and deals are currently available?

The new Dutch-style mortgages come with 5, 7, 10, 12 and 15-year fix options, meaning that the interest rate you will pay will gradually decrease in line with the LTV over those periods.

Rates on these deals range between 4.99% and 5.75%, at the time of writing (November 2024).

You can see how this compares to the rates available from other mortgage lenders by using our free, whole-of-market comparison service - get started here.

Should you get a Dutch-style mortgage?

They are aimed at borrowers who want certainty and flexibility throughout their mortgage term. The biggest benefit compared to the alternatives is that you don’t need to go through the remortgage process - which can be lengthy and costly - to take advantage of lower rates.

The main alternatives are the flexible mortgages available elsewhere. Other lenders offer perks and incentives such as longer fixed rates, no ERCs and uncapped overpayments, so it is wise to see what rates they offer if these are the most important features for you.

Perhaps the biggest drawback of Dutch-style mortgages is that the lender who is offering them might not necessarily be offering the best rates that you qualify for at each LTV band. 

Although you would have to remortgage with other lenders to take advantage of decreases to your LTV, the overall cost of doing so, with all of the fees factored in, might work out in your favour if you end up with a substantially lower interest rate elsewhere.

Pros and cons

The table below highlights the other main advantages and disadvantages of Dutch-style mortgages to help you decide whether they are an option for you.

Do I need a broker to get a Dutch-style mortgage?

Yes. The mortgage lender that is currently offering them is intermediary-only, which means their products and services can only be accessed through a broker.

But even if this wasn’t a mandatory requirement, speaking to a broker before you apply would be highly recommended, as it is essential to review every possible alternative before limiting yourself to one lender and applying for a Dutch-style mortgage.

Here are some of the main benefits of using a Teito broker for your application:

• You can access a much wider range of mortgage deals
• Exclusive rates are often available through us
• Your initial consultation is always free 
• We won’t leave any marks on your credit report

Ready to take advantage of a free no-obligation chat with a whole-of-market broker to discuss all of your options? Get started here.