Perenna, and the pros and cons of ultra-long-term fixes

Perenna's new 'fix for life' mortgage is an interesting idea, but as with any financial product, it's a mix of pros and cons. On the upside, their offer to lend up to 6x income is a big plus, as there is no maximum age limit, broadening the scope of who can realistically aim to buy a property. The unique selling point, the 'fix for life' feature, is that it offers a level of security and predictability that's rare in the mortgage world. Your payments are locked in and are immune to market fluctuations, interest rate hikes and economic downturns. However, there are downsides. You could be missing out on future rate drops. Market conditions can improve, after all. Moreover, the 'fix for life' mortgage might come with a higher initial rate compared to more traditional fixed-term mortgages. Perenna’s offering is exciting for those seeking super-long-term stability but it's important to weigh up the certainty of fixed payments against the potential benefits of future market conditions.

It's fantastic to see a new lender come to market and not simply follow the herd by offering the same products and criteria dressed up as something new. With 6x income, Perenna will definitely jump to the top of most affordability models. Twin this with no maximum age gap and we might just have a lender that can truly help first-time buyers bridge the widening income to house price gap. Their USP of fix for life comes with the benefit of never having to worry about your mortgage payments again. Even if your utility and other bills rise, your mortgage payments won't and that, for some, will be invaluable. There's also no need to worry about swap rates, Bank of England rate decisions and what your mates down the pub are paying. Instead, begin today, agree your product and never have to worry again, all with the extra perk of being able to change with no charge should your circumstances be different after five years. Perenna brings extra choice to consumers and that's a win in itself.

A curious new mortgage lender has emerged: Perenna Mortgages. Offering 6x income and just a 5% deposit, there's no doubt that Perenna will allow more young people to achieve the dream of property ownership. For example, a hypothetical couple earning £120,000 can secure a £750,000 home, secured by a 40-year mortgage with a monthly premium of £4,907. For five years, all goes swimmingly, and their mortgage balance falls to £694,183. But then comes the reckoning. Even with no kids and no new debts, if their incomes have stagnated over this 5-year period they will struggle to remortgage to another, cheaper, lender if rates have dipped. With incomes unchanged, they will need a lender offering a 5.78x income multiple, which the vast majority simply won't offer. Then the broker will be faced with the grim task of telling this couple that they have no option but to stay with Perenna. This product is great in theory but could have a real sting in the tail in certain scenarios. Borrower beware.

Perenna is more American than Hulk Hogan and apple pie. The US model of high-income multiples and long-term fixed rates has failed previously, so will history repeat itself? The rate is fixed for at least 20 years, so there are no concerns about the borrower not being able to afford the mortgage until the debt has significantly amortised. Coupled with a 5-year ERC, flipping to 'normal' rates is accessible quickly, particularly with more lenders offering 5.5 times income as a stepping stone. As ever, considering the future is imperative as 5.5 income multiples are commonly just for £75k plus incomes, £15k more than the £60k required to unlock the 6 times income with Perenna. Nonetheless, long term, if a person buys one property at an affordable rate and cannot remortgage to the high street for even 10 years, that could arguably be better than buying cheaper, but then having to buy twice. This product is arguably a good one for young professionals with reliable income increases, too.

The concept Perenna is working on in theory is a good one. Avoid the FCA Rules on affordability when exiting a product onto a standard variable rate by extending the fixed rate for the term of the mortgage. The result of this is an affordability model that allows purchasers to borrow far more than any other lender at a much higher loan-to-value. Perenna no doubt would argue that this is a necessary innovation given the pressure on first-time buyers' ability to get onto the property ladder. However, in my experience just because a product is innovative does not necessarily mean it is good or suitable. Kensington tried something similar recently with the Fixed for Term mortgages and very quickly watered these back down due to the demand. I would not be surprised if these do not evolve to something with less bang than the launch has offered.

With any new facilities offered by lenders in the past three decades, we have always sat back and looked before leaping to advise. It's a process that's served us well. The United States is stuffed with such long-term fixed-rate and term products but the UK works in a different way and rightly so. We are pleased to see new innovations, as we need them, and will be discussing with Perenna what their future looks like and ways that we can work with them.

Long-term fixed rates have long been pushed by the Government, but haven't been adopted by the British public in the same way that some Europeans and many Americans seem to have. The issues tend to be two-fold: rate and commitment. In the past, many of the longer-term (over five years) deals have been more expensive than a short or medium-term offering, which many customers have been unable to get past; many opt for the middle ground of a 5-year fixed rate if they want more stability than the shorter 2 or 3-year deal, but are unwilling to pay the extra for the stability of a longer term product. The second issue is commitment, with many borrowers unhappy to tie themselves into longer-term deals where there is a penalty beyond the initial 5 years, which is understandable as life is unpredictable. Some lenders have tried to side-step this by having long-term deals with 5-year tie-ins, but this then pushes up the interest rate and further exacerbates the first issue around pricing.

If the ERC really is the 5 years they say it is and not dependent on other Ts&Cs, then this product could be a good option. I know with Kensington's flexi-fix for life, there is harsher affordability and caveats for a mid-term break.