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New UK lender plans 50-year fixed rate mortgages

A new lender has been granted a licence by UK financial regulators to offer mortgages with fixed rates of up to 50 years in a move aimed at helping borrowers manage soaring inflation.

Perenna, a UK-based specialist lender, is initially planning to provide home loans that lock in rates for 30 years, before rolling out products with even longer terms.

Its approval comes as the Bank of England raises interest rates in an attempt to tackle rapid inflation, which has reached a 40-year high of 9.4 per cent in Britain.

Longer-term mortgages have been mooted as a way to help younger people on to the housing ladder as property prices remain high.

Boris Johnson, prime minister, last month explored plans for longer mortgages that could be handed down between generations.

House prices in the UK reached a record high last month, although data from property site Rightmove on Monday showed the average value had dipped 1.3 per cent in August to £365,173.

Banks typically provide mortgages with fixed rates of up to 10 years, with the most popular products lasting two and five years, according to Ray Boulger, senior manager at broker John Charcol.

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.

Arjan Verbeek, chief executive and founder of Perenna, 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.

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.”

Gerard Lyons, an economist and former adviser to Johnson, wrote in a paper for think-tank Policy Exchange last week that “one of the critical areas for a new prime minister is to address the challenges in the housing market, and to help turn Generation Rent into Generation Buy”.

Unlike banks, which fund much of their mortgage lending through customer deposits, Perenna will issue covered bonds to pension funds and insurers for longer-term financing.

Few lenders have issued such long home loan deals, with the longest fixed offer stretching to four decades. Last year, specialist lender Kensington launched a 40-year fixed rate mortgage with insurer Rothesay.

Boulger said: “This is a major event for borrowers interested in longer-term mortgages. A player coming into this market will clearly enhance awareness and increase competition.

“The fact Perenna is using covered bonds for funding, while Kensington is using pension annuities, is also positive for diversification in the market.”

Perenna has raised about £35mn from investors including IAG Silverstripe, a venture capital fund that had backed peer-to-peer lender Zopa.

Its banking licence will come into full effect once it has finished building its systems. The lender is aiming to launch its first products within six months. It is also planning to work with challenger banks as distribution partners, allowing them to use its funding platform to issue loans.


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