Lender to bring 50-year fixed mortgage to market

Lender to bring 50-year fixed mortgage to market

New digital lender Perenna has been granted a licence by UK financial regulators to offer mortgages with fixed rates of up to 50 years in a bid to help borrowers get on the property ladder and manage soaring inflation. 

The UK-based lender is initially planning to provide home loans that lock in rates for 30 years, before rolling out products with 40 and 50 year fixed-rates.

The lender is aiming to launch its first products within six months and has raised about £35mn from investors including IAG Silverstripe.

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The move comes after last month, prime minister Borris Johnson explored plans for longer mortgages that could be handed down between generations.

Speaking to reporters during a trip to Madrid for the Nato summit last month, Johnson said Downing Street was “certainly” looking at mortgages which could be passed from parents to children.

Longer term mortgages are not common in the UK. While a number of lenders now offer 25-year fixed rates, the maximum fixed term on the market is currently 40 years.

Perenna could offer rates of 4 to 4.5 per cent on the 30 to 50-year loans, although this would be affected by gilt yields at the time of launch, according to the Financial Times. 

Speaking to the Financial Times, Perenna founder and chief executive, Arjan Verbeek said longer-term rates should help borrowers during the cost of living crisis and in an environment of rising interest rates. 

“Rates are going up and if you have a household budget to manage, you need to know what you’re paying on your mortgage every month,” Verbeek said. 

“With inflation running high, this will take a chunk of the stress out."

Verkeek added: “Mortgages are broken in the UK because normal people can’t buy a house. This is not the case in other markets, such as the US and Denmark, where stability is being provided by long-term mortgages.”

Responding to an FTAdviser article last month, Verkeek said that interest rates are driving house price inflation, not a lack of supply.

“There is a need for more supply, but let's be honest, more supply will only be there if properties can be sold at the right price. The mortgage market needs to be reformed first.”

He continued: “Long term fixed rate mortgages do not increase house prices, house prices are already at the limit of affordability. As long as affordability is controlled, long term fixed rate mortgages help to resolve inequalities and the issue we face without increasing house prices.”

The lender’s banking licence will come into full effect once it confirms to the regulators that its banking infrastructure is in place. It is also planning to work with challenger banks as distribution partners, allowing them to use its funding platform to issue loans.