New Dutch-style lenders are releasing fixed-rate mortgages with rates that automatically decrease as the borrowers pay them back.
April Mortgages was authorised by Financial Conduct Authority (FCA) in October and plans to offer new loans by March to homeowners who are remortgaging or to those who are buying a home.
The bank is the UK subsidiary of Dutch asset manager DMFCO. DMFCO has made over 100,000 loans in the Netherlands totaling nearly €30 billion since 2014.
The mortgages were provided by the UK subsidiary of a Dutch asset manager who has made over 100,000 loans to home owners in the Netherlands.
The bank will fund its loans, as in the Netherlands and the UK, through pension funds, life insurance companies and investments, not by saving deposits.
April’s unique selling point is that, as homeowners pay down their loans or if the value of their property increases, they will be automatically moved into a loan-to-value range with a likely lower rate. This is normally only possible when homeowners remortgage.
Tim Hague is the commercial director at April. He said, “Reducing interest rates to reflect borrowers’ decreasing balances simply reflects a fairer way to treat our customers.” The UK mortgage market, we feel, has missed the opportunity to give borrowers some real benefits. The lower the mortgage balance is, the less risky it is, and this should be reflected by the rate.
April offers fixed rate deals for five, seven, 10 years, 12 years and 15 year periods, starting at a rate of 4.99 percent. If someone wants to move house or pay off their mortgage, there are no charges for early repayment.
The firm will initially only offer loans up to 85% of the property value, but it plans to extend mortgages next month to first-time homebuyers with a 5% deposit.
The bank is trying to get traction in the UK mortgage market by offering a new type of mortgage. Perenna began offering fixed rate mortgages up to 50-years before Christmas. The rates now start at 4.99 per cent.
Homebuyers can borrow up to six-times their salary, at a loan-to-value of up to 95 percent. This is compared to a typical 4.5-times.
In countries like Denmark, France and Germany, longer-term fixes have become common. British politicians have hailed them as an answer to the housing crises, allowing homebuyers to borrow more without the risk of a rate shock.
The majority of UK borrowers choose short-term deals, usually between two and five years. This is because longer loans tend to be accompanied by expensive early repayment fees throughout the loan life.
Perenna does not charge any early repayment fees after five years. It funds its loans by selling covered bonds to investors. Both banks hope that their features will help them gain share in the market dominated largely by large UK banks.
The trade association UK Finance reported that Lloyds Banking Group (LBG), NatWest, Santander and Barclays were responsible for 71,8 per cent of new UK mortgage loans in 2022.