Colin Bell, co-founder and chief operating officer, Perenna
Long-term fixed-rate mortgages are not yet the norm in the UK. However, they are the missing jigsaw of the mortgage market, providing much needed stability and flexibility for borrowers.
As with anything different, it can take time to feel comfortable with a new offering and for both brokers and borrowers to understand the benefits it can bring.
But, with the turmoil we’ve seen in recent months, a new option that can give certainty over mortgage payments for up to 40 years could be exactly what’s needed.
Although the rate of a Perenna mortgage may be higher than some other ‘teaser’ rates, the real question is how these may compare longer term
Why does the mortgage market need to change?
For too long, lenders with a short-term focus have dictated the terms of the market because it matches their short-term funding. This has resulted in a market where the risk falls onto borrowers. Whether it’s the risk of interest rates rising in the future, or that product options will be removed when deals come to an end, short-term fixed rates can present problems for borrowers.
Unfortunately, we’re seeing a lot of that pain today. Of course, the risk isn’t isolated to borrowers. Short-term business means brokers experience this too, as they must constantly chase new business.
Is there a reason long-term fixed rates aren’t currently popular in the UK?
Millions of people across the US and Europe already benefit from these products, so there’s no reason they can’t work in the UK. However, there are many myths out there that could be preventing this; the key barrier being flexibility (or the perception of flexibility).
We’ve considered brokers too — in addition to paying a proc fee at the point of completion, we offer trail commission for the life of the loan
Typically, longer-term fixed rates offered in the UK have not given borrowers the flexibility they want. Ten-year fixed rates can come with long early repayment charges (ERCs), which can restrict borrowers. This can be offputting for borrowers and can make it difficult for brokers to advise on these products if their clients have shown they need some flexibility.
However, a Perenna mortgage is different as it combines long-term stability with flexibility. Imagine a 35-year fixed rate with no ERC, giving you control over if, or when, you want to change your deal — this is what you have after the first five years.
Borrowers have payment certainty for the whole mortgage term, knowing they need never pay a penny more. No teaser rates, no rising payments, no shocks. Plus, as there’s no need to remortgage every few years, they can leave the worry (and fees) behind. They can even take their mortgage with them when they move home, or change to another lender or product without charge, after five years.
Unlike with many lenders, there’s no maximum age limit at any time, giving borrowers more options in later life
Of course, we’ve considered brokers too — in addition to paying a proc fee at the point of completion, we also offer trail commission for the life of the loan.
Are longer-term fixes more expensive?
Although the rate of a Perenna mortgage may be higher than some other ‘teaser’ rates, the real question is how these may compare longer term.
For example, if a client takes a short-term deal, you’ll need to consider what happens when it ends. Can they afford a new mortgage if rates rise, or if their circumstances change? Perenna removes this risk. Can you put a price on peace of mind?
Long-term fixed-rate mortgages are the missing jigsaw of the mortgage market
Who is the Perenna mortgage designed for?
A Perenna mortgage can suit anyone looking for financial certainty, but is particularly attractive to those underserved segments of first-time buyers looking to borrow a little bit more and later-life borrowers wanting to release equity from their property.
We’ll lend up to 95% LTV, with fixed-rate terms up to 40 years, helping borrowers lower their monthly payment amount. As there’s no SVR, there is no stress for interest rate risk, which we know restricts affordability. Borrowers can borrow up to six times income, subject to criteria — a significant boost for many first-time buyers who consistently struggle with affordability.
As retirement approaches, homeowners often find the options on offer are limited. Perenna aims to help people make the most of their retirement. Unlike with many lenders, there’s no maximum age limit at any time, giving borrowers more options in later life.
A Perenna mortgage is different as it combines long-term stability with flexibility
Why not visit our website and try our calculator on some real-life examples? You’ll easily see how much we would have lent and which of your clients could benefit from a Perenna mortgage.
Perenna is a bank that is on a mission to create a nation of happy homeowners. It has changed how mortgages are funded, using covered bonds instead of savings deposits, meaning it can offer flexible long-term fixed-rate mortgages that protect customers from rising interest rates.
