A new mortgage lender will offer borrowers the ability to fix the rate of interest on their home loan for up to 30 years.
Perenna, a new bank, has secured its unrestricted banking licence, becoming the first start-up to do so in 2023.
It first revealed plans for the mammoth term mortgages in early-2021, a common product in many countries, but not in Britain.
UK borrowers are familiar with much shorter fixed-rate deals, where the interest rate is guaranteed to remain the same for a set period of time – typically two or five years.
Perenna’s leadership team: Colin Bell, founder and chief operating officer (left), Arjan Verbeek founder and chief executive officer (middle), Hamish Peacocke founder and chief capital officer (right)
After this, borrowers are typically put on a higher rate, or remortgage to get a better deal.
Perenna’s flagship product will instead enable customers to fix the mortgage rate for 20 or 30 years.
The aim, it says, is to provide borrowers with both security and certainty about what they will pay each month for at least the next two decades.
However, at the same time, Perenna is offering borrowers an escape route during the fixed rate term, which isn’t typical with shorter term deals.
With Perenna, early repayment charges (ERCs) will only apply for the first five years, meaning borrowers will have the flexibility to switch to another lender following the initial five years without incurring a charge for doing so.
Early repayment charges typically range from between 1 and 5 per cent of the mortgage amount.
Colin Bell, chief operating officer and co-founder of Perenna says: ‘Our mission is to create a nation of happy homeowners.
‘We’re excited to offer our flexible products to consumers who, for too long, have been left underserved.
Colin Bell, the chief operating officer and co-founder of new mortgage lender Perenna
‘Our product offers improved affordability, certainty of monthly payments, and flexibility through low ERCs.
‘We want people to get on with their life and not worry about their mortgage product.’
On top of the added security and certainty that a longer term fix will give people, Perenna says its products will have other benefits.
It will enable first-time buyers to potentially borrow more as it won’t stress test against interest rate risk. Stress testing is when a lender checks that a borrower would still be able to afford the mortgage if interest rates rose to a certain level.
Perenna will differ from most UK lenders in this regard, which require new borrowers to be able to afford mortgage stress rates of close to 8.5 per cent at present.
First-time buyers are able to secure a mortgage with Perenna a minimum deposit of 5 per cent.
Perenna claims this will enable first time buyers to potentially get on the ladder earlier or buy the place they really want.
Perenna will also allow customers to borrow between five and six times their income.
Most mortgage lenders typically allow customers to borrow up to 4.5 times their annual income.
Customers will have the option to remortgage after five years without incurring a charge
Alongside first-time buyers, Bell says Perenna will help mortgage prisoners who are currently stuck on their current lender’s standard variable rate, unable to remortgage – as long as they have a good credit rating.
He also says there is no maximum age cap, which should benefit older borrowers looking to release capital from their home, without being limited by a shorter mortgage term.
Nicholas Mendes, mortgage technical manager at John Charcol welcomed Perenna’s pending arrival.
He said: ‘After months of speculation it looks like we could finally see Perenna in action.
‘Perenna will offer homeowners a fixed rate for 30 years with an early repayment charge up to five years, a product which is unrivaled by any other longer term fixed rate competitors.
‘Previously the issues with longer term fixed rates were the limitations and potential costs when it comes to porting or redeeming the mortgage.
‘In a period when lenders are reducing a client’s maximum borrowing to factor in the cost of living, this income multiple calculation will allow more homeowners and first-time buyers to potentially get on the property ladder or offer them a level of stability and flexibility they need.’
However, it is thought that the mortgage rates will range between 6.5 per cent and 7.5 per cent.
Although this is not far off the average two-year fixed rate average of 6.66 per cent, according to Moneyfacts, it is a long way from the cheapest shorter term deals on the market.
Borrowers can currently get 5.75 per cent when fixing for two years or as low as 5.16 per cent when fixing for five years.
Shorter term obsession: The UK mortgage market is made up of mainly shorter term deals (ST) as opposed to other European countries where longer term deals (LT) are much more the norm
Chris Sykes, associate director and mortgage consultant at broker Private Finance says: ‘I love the concept, we’ve been big advocates of long term fixed deals for a long time now – but if the rates are between 6.5 and 7.5 per cent it is just too much.’
Perenna’s proposition is created by a funding model which relies on issuing covered bonds to investors seeking long-term stable income, such as pension funds and insurance companies.
This will enable the business to offer its range of long term fixed deals, which it hopes will help first time buyers, second steppers and later life homeowners.
Initially, Perenna will offer its mortgages to people on its waitlist, and then the wider public later this year.
Arjan Verbeek, chief executive and co-founder of Perenna, said: ‘We’re introducing much needed structural change to the UK.
‘In other countries, billions of pounds of pension savings are channeled into the real economy using covered bonds.
‘Together, our unique funding model and banking licence will enable us to do exactly the same in the UK and unlock the housing market, an important part of GDP.’
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