Flexible long-term fixed rates could “dominate” the UK mortgage market in the future, mortgage lender Perenna has stated.

The firm, which offers mortgage terms for up to 30 years, suggested that longer fixes could provide more flexibility and stability for consumers in the UK.

A 30-year fixed rate mortgage can allow a homeowner to refinance when it suits the customer, rather when it suits the bank, and Perenna believes that in the medium-term, the UK might see more people turn to the concept.

Perenna co-founder and COO, Colin Bell, exclusively told MoneyAge that the lender sees a “gap in the market” for flexible long-term fixed rate mortgages, particularly as the cost of living crisis continues to impact consumers.

“Many people are now feeling the effects of rising costs, including utility costs which are rising significantly, but also now they are seeing their mortgage payments going up as base rates are rising, and new product releases are being priced upwards,” Bell said.

“If you can fix your mortgage rate for life at a level you’re happy with, and if you’re not locked in for a lengthy period so you can change your mortgage if things get better for you or the market improves, then surely that’s a great place to be. People are still fixing their mortgage for two or five years, but they don’t know where rates might be in two years’ time, or what their personal situation will be.

“With a flexible long-term fixed rate mortgage, you can move your mortgage when the timing suits you. This concept is about giving consumers stability and allowing them to budget, since they will know the maximum their payments will ever be through the life of that mortgage.”

Perenna funds its long-term mortgages through the issuance of covered bonds, giving the lender the ability to match the funding to the mortgage, and for any length of term up to 30 years.

Bell believes the potential of the covered bond market is “huge”, and added that there is “massive demand” for low risk fixed income products.

“If you look across Europe, in countries like Denmark, Germany, and the Netherlands, as well as to the US, where there are markets with long-term fixed rate mortgages, it’s the product of choice for consumers,” he commented.

“It’s a neat concept for the introducer market too. We want to focus on changing mindsets in the introducer market to seeing this as a long-term contract, long-term relationship with the customer, and they will be paid through the life of the mortgage if they keep the relationship alive with the customer.

“Our proposal is that we will pay them up front as normal as if they were selling any other type of product, but we’ll also pay them through the life of the loan. This would mean they’re getting payments for reviewing the customer’s needs, but they don’t necessarily need to be switching the customer’s mortgage all the time. They just switch it when it is right for the customer.”

Perenna’s mortgages, which the lender describes as “fixed for life”, mean the monthly payment over the whole life of the mortgage is fixed, while early repayment charges are up to just five years.

Bell believes that in this regard, the concept can work well for several different types of borrowers, from first-time buyers who could potentially get onto the property ladder quicker, to later life borrowers who may have more equity tied up in property.

“There’s no reason why over the medium-term, the UK can’t switch to a long-term fixed rate mortgage environment, where 70 to 80% of people would be on long-term fixes,” Bell added.

“That would take time because people are on five-year rates and two-year rates, and they need to get used to the concept. There’s then no reason why long-term fixes can’t dominate in the UK as well, once it’s a well-established market.

“The UK mortgage market is large for the size of the country, with originations running at more than £20bn a month. And this doesn’t include all the equity that is tied up in property. There is a large and growing level of equity stretching into trillions in the over-50s bracket. That’s a huge amount tied up in illiquid assets.”

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