New lender prepares to launch 30-year fixed rate mortgages

A new lender is preparing to enter the mortgage market with long-dated fixed rate mortgages in a move seen by some as a sign of a market downturn.

Longer-term fixed term loans have been suggested as a solution to help first-time buyers onto the property ladder, with previous backing from the Tony Blair Institute, the Bank of England and the UK government.

New lender Perenna, which has received a banking licence with restrictions from the Prudential Regulation Authority and Financial Conduct Authority, has unveiled plans for a 30-year fixed rate mortgage alongside a wider suite of products that could later stretch to a 50-year timeframe.

The fintech firm will be able to market its products once it confirms its banking infrastructure and its restrictions are lifted.The Perenna business model aims to use the covered bond market by channelling the trillions of pounds of insurance and pension funds into the UK economy through its loans.
 

Arjan Verbeek, chief executive of Perenna, said: “It is very exciting to be a bank that is authorised with restrictions, and it is a major milestone for the team. 

“The UK financial infrastructure requires significant innovation to get growth back and reduce inequality.

“Perenna will be the blueprint to deliver this, for mortgages as well as small businessses and infrastructure. 

“Perenna will support consumers with buying their first homes, moving home, supporting themselves in retirement and help the transition to net zero. Perenna looks forward to working with other initiatives to increase private sector investment into the real economy addressing the structural challenges we face.”

The prospect of such a long loan term has prompted criticism from some and concerns about the prospect of a housing market crash.

David Alexander, chief executive of DJ Alexander Scotland, said: “While it is right that governments’ should seek to introduce policies that enable more people to buy their own homes this is one idea which simply won’t work.

"Having housing debt last 50 years, even at a fixed rate, with the very real potential for this debt to transfer down the generations is a policy that will cause stagnation in the housing market rather than growth.

“With people stuck on 50-year mortgages they are unlikely to be able to afford to move as it will take decades for equity to accrue, debt will remain very high for years resulting in the bulk of repayments being made against interest, and there will be little opportunity or ability to move home despite the likelihood of changed circumstances."

If the government really wants to stabilise or reduce prices, he said, then it needs to increase supply.

He added: "Demand has been outstripping supply for years in both social housing and the private sector and unless this is resolved there will continue to be housing shortages and rising prices.”

“The solution to the problem is to encourage more homebuilding through an easing of the planning system; seriously increase the volume of social house being built; and encouraging investment in the private rented sector to continue to meet the demands of people not currently buying and not eligible for social housing. A 50-year mortgage is simply temporarily sustaining the market and passing debt on to the next generation which does nothing to resolve the long-term underlying issues in the housing sector.”