A Dutch-Style Mortgage Lender Enters the UK Market: A Game Changer?

The UK mortgage market is set to experience a significant shift with the introduction of Dutch-style mortgage lender, April Mortgages. The new entrant plans to offer fixed-rate mortgages where rates automatically reduce as borrowers repay them. This innovative approach differs from the traditional model where homeowners can only switch to lower loan-to-value bands when they remortgage.

April Mortgages is a UK subsidiary of Dutch asset manager DMFCO and is expected to offer loans to both existing homeowners looking to remortgage and new buyers by the end of March. 

Unlike traditional UK high street banks that fund loans from savers' deposits, April Mortgages plans to fund its loans through investments from pension funds and insurance businesses.

The new lender will also bring in a unique feature where as homeowners pay off their loans or if their property value increases, they will be automatically switched into a lower loan-to-value band and potentially a lower rate. April Mortgages will offer fixed-rate deals of five, seven, ten, twelve, and fifteen years, starting at a rate of 4.99%.

While the initial lending will be at up to 85% loan-to-value, April Mortgages plans to offer mortgages to those with a 5% deposit next month, focusing on first-time buyers. Despite the dominance of big UK banks such as Lloyds Banking Group, NatWest, Santander, Barclays, HSBC, and Nationwide Building Society, which accounted for 71.8% of all new UK mortgage lending in 2022, April Mortgages and other new entrants like Perenna hope to gain traction in the market.

Perenna has already started offering fixed-rate mortgages of up to 50 years. These longer-term fixes are common in other countries and could help UK borrowers borrow more with less risk of interest-rate shocks. With these new players and innovative offerings, the UK mortgage landscape is poised for change.