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Long-term fixed rates/Perenna

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 07. September 2023

Interested to see what brokers think about Perenna/long-term fixed rates between 20 to 30 years. 

Perenna received its full banking licence today, and will initially offer mortgages to people on its waitlist and then open to the wider public later this year. 

  1. What are the advantages and disadvantages of long-term fixed rates?
  2. When would you recommend them? 
  3. Do you expect them to become more popular? If not, what are the barriers to them becoming mainstream?

8 responses from the Newspage community

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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Interesting move by Perenna to focus on long-term rates. Whether they will catch on remains to be seen. Anyone entering effectively a fixed rate for the term of their mortgages will be keen on the flexibility offered. Can they get out easily and at what cost? What if they want to borrow more and at what rate? What fees are involved to set up? Such factors will have a massive bearing on Perenna's success and marketability of their products. There will be a place in the market for this, it is all down to details.
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Justin Moy
Managing Director at EHF Mortgages
The concept of longer term fixed rates are very popular in Europe and the US market, and was something one or two specilaist lenders brought to our market about 2 years ago. Obviously in hindsight they would have been great options for homeowners when rates were low, in the current market they will have less appeal, as no one will want to lock into a 'high' interest rates for the long-term. Once we return to whatever is seen as a normal market, I would imagine the whole market will need to review the role of short and long term products, but if we did adopt this idea of longer term deals, the government woudl have to find another way of controlling inflation through base rate increases, as they would have little impact in this type of environment.
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Rohit Kohli
Director at The Mortgage Stop
Long-term fixed deals are much more popular in the US and Europe. They never really caught on in the UK as lenders tended to lock in the borrow with eye-watering penalties for much of the term. The certainty they offer can not be argued against but often the flexibility of the products is limited. No one knows for sure how their lives are going to evolve over the next 5 years let alone the next 20 years so what happens if you need to borrow more or move home? Looking at the marketing from Perrana they seem to be only tying in borrowers with a penalty for 5 years so this could be an option for clients with certain circumstances who need long-term certainty today. Given the recent turmoil, these could become popular but I don't see many people wanting to lock in for 20+ years at today's interest rates. People also have short memories so if/when rates start to drop will a long-term fix retain the appeal that it may have today?
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
If we really want the cost of housing to come down and be stable over time, we need longer fixed-term Buy-to-let mortgage deals in this country. Can't you see what is going on in the market? Landlords are being pushed out of business because of excruciating mortgage rates. In the mortgage market, if SWAP rates go up, so will the stress test rates. So the only way for a landlord to meet that crazy 125%-150 % of interest costs at 7-8% stress test rates is by raising the rent. There is no other magic solution to this. And who suffers in the process? The poor tenant, who now has to go look for another home in a fiercely competitive rental market.

By not offering long-term, fixed-rate, secure mortgages for landlords, the mortgage industry is in turn fueling the homelessness crisis. If one can secure a fixed rate for 30 years, there will be no need to stress these at obscure and unaffordable rates.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
The key question with any long-term mortgage is simple: What's the client's commitment? If someone takes on a 20-year fixed rate mortgage and can leave without charge at any point, or any point after the initial few years, then there will be sensible discussion to be had if the rates and fees are pitched correctly. If however, the mortgage is fixed for that length of time and is not portable, has an early repayment charge for a large part of the term, or the rates and fees are simply not competitive then it's not going to be an attractive proposition despite the idea of knowing that your repayments won't change, because your life will, and you'll need your mortgage to be able to accommodate that without huge costs.
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Richard Campo
Founder at Rose Capital Partners
1 - As rule, long-term fixed rates have never worked in the UK. Mainly for the reason that they have penalties for the duration of the mortgage, unlike our US and European counterparts who offer long-term fixed rates but are only tied in for a short period or not at all. Until that dynamic changes, borrowers don't like the lack of flexibility as you never know what life may throw at you
2 - Long term fixed rates are good for that 'last move'. Indeed I did that myself as I recnetly moved to leafy Surrey for my children to go to a good school so I am set for the next 16 year minimum. In those situations are they are great, but that was also in the low interest rate era. As rates are higher now, and set to fall, I just can't see them being as attractive in years to come
3, Pricing will be the main factor. Fixed rates are falling and that could well continue for the next year or more. I would be very hesitant to recommend a long-term fixed rate now as it could start to look expensive later
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Gary Bush
Financial Adviser at MortgageShop.com
Fixed rates of 20 - 30 years are a common occurrence in the US where all deals are long-term. Yes, fixing for a long period is a great idea and one that once the rates decrease may gain some traction however the UK mortgage market is one that's forever in flux it seems. If you tie into a lender for a long period and as is the case now you will have a redemption penalty that exists for much of that period of years - what happens if you need to borrow more money your circumstances have changed and the lender you are tied to won't assist your new circumstances but other lenders will. UK lenders' underwriting criteria change frequently, borrowers who were once flavour of the month with a particular lender can suddenly find themselves getting declined - this would be obviously true for self-employed applicants. Obviously, if these products become commonplace in the UK adjustments would need to be made to make these more palatable.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
I support the new 30 year fixed rates. They allow clients to easily budget and reduce worry when refinancing at the end of their fixed rate. The disadvantage to this is not being able to settle your mortgage early but few have the ability to do that. The disadvantage of taking advantage of rate reductions are far outweighed by the security this product offers and those who went on to higher variable rates recently would attest to that. I would recommend this product as it allows clients to have far more financial freedom. This is going to be so beneficial for lower income families where being on the variable rate and having unexpected monthly mortgage increases could leave them without the money for basic necessities. These long term fixed products are common place in other areas of Europe and work perfectly and I have often seen European clients come to me with confusion and loathing that they cannot get their rate fixed for longer than 5-10 years