New British lenders plan 50-year fixed-rate mortgages

A new lender has been licensed by UK financial regulators to offer fixed-rate mortgages for up to 50 years in a move aimed at helping borrowers cope with soaring inflation.

Perenna, a UK-based specialist lender, initially plans to provide mortgages that lock in interest rates for 30 years, before rolling out products with even longer maturities.

Its approval comes as the Bank of England raises interest rates in a bid to tackle rapid inflation, which has hit a 40-year high of 9.4 percent in Britain.

Long-term mortgages have been suggested as a way to help younger people onto the housing ladder as property prices remain high.

Prime Minister Boris Johnson last month explored plans for longer mortgages that could be handed down between generations.

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

Banks typically offer fixed-rate mortgages 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 interest rates of 4 to 4.5 percent on 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 long-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 each month,” Verbeek said. “With high inflation, this will take some of the stress off.

“Mortgage is broken in the UK because normal people can’t buy a house. This is not the case in other markets, such as the USA and Denmark, where stability is provided by long-term mortgages.”

Gerard Lyons, an economist and former adviser to Johnson, wrote in an article for the Policy Exchange think tank 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 around Generation Lei into generational purchases”.

Unlike banks, which finance much of their mortgages through customer deposits, Perenna will issue bonds with preferential rights to pension funds and insurance companies for long-term financing.

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

Boulger said: “This is a major event for borrowers interested in long-term mortgages. A player entering this market will clearly raise awareness and increase competition.

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

Perenna has raised around £35m from investors including IAG Silverstripe, a venture capital fund which had backed peer-to-peer lender Zopa.

The banking license will take full effect when it has finished building its systems. The lender aims to launch its first products within six months. It also plans to work with challenger banks as distribution partners, allowing them to use the funding platform to issue loans.

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