A new specialist mortgage lender has been granted a licence by financial regulators to offer mortgages with fixed rates up to 50 years.
Perenna, a digital mortgage bank, will initially offer home loans that lock in rates for 30 years and plans to eventually introduce mortgages that last up to 50 years. It aims to launch its first mortgage product within the next six months.
The bank announced on LinkedIn that a fixed-rate mortgage of 30 years or more would protect homebuyers from uncertainty and rising interest rates.
Extra-long mortgages are seen as one way to help younger people get on the property ladder amid inaccessibly high property prices. The government is already trying to increase home ownership with measures including extending the right-to-buy to housing association tenants and trying to increase access to 95% mortgages for buyers struggling to save for a large deposit.
Most fixed-rate mortgages are for two or five year terms - and in fewer cases 10 years. Perenna could offer rates of 4% to 4.5% on its 30- to 50-year-mortgages, according to reports in the Financial Times.
Last month Boris Johnson confirmed the government was considering the idea of ultra-long mortgages: “Yes, certainly. We want to find all sorts of creative ways to help people into ownership.”
The idea is not new: mortgages lasting 100 years have been issued in Japan. It means people being able to buy a home with little or no expectation of completing mortgage repayments during their lifetime; instead the property and outstanding debt would be passed on to their children. It could also allow people to buy a bigger home than they otherwise might be able to afford.
But, commentators have warned ultra-long mortgages would not address problems of housing supply, affordability and could further drive up property prices.
Are 50-year mortgages a good idea?
Property expert Henry Pryor says: "Being able to fix your mortgage has become more and more popular and not just because the rates have been at record 300 year lows. People like to budget and to know where they will be when it comes to their finances.
“People are worried about what might happen to interest rates because of what it might do to their mortgage cost - just look at the cost of energy to see how harsh it can be if you can't lock in to a rate. Those of us with grey hair can recall interest rates officially hitting 12% for a brief time and when rates rise so do repossessions.”
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said: “It is not the mortgage market that is preventing people from becoming homeowners; it is the cost of property in relation to people’s earnings. The issue isn’t to find ways to help people take on more debt, we need to find ways to build more houses, in the areas people want and need to live.”
Rob Gill, managing director at Altura Mortgage Finance, is sceptical about the idea in the UK. “A decade of ultra-low interest rates, followed by inter-generational mortgages have been a feature of the Japanese mortgage market since the mid-90s. Low interest rates boost property prices, long mortgage terms then keep them going as the only way first-time buyers can get on the ladder. It seems governments the world over will do anything to avoid the alternative of property prices actually falling.”
Other potential problems include the prospect of people paying mortgage payments into retirement and inheritance tax potentially being liable when the property is passed on to children.
Wondering how much you can borrow for a mortgage? Use our simple mortgage calculator to work out exactly how much you can get for a mortgage, depending on your annual income and the deposit you have.
Additional reporting by PA
-
-
Octopus Energy relaunches energy tracker deal – we explain what you need to know and if it could save you money
If you’re an Octopus Energy customer, you may be able to save on your energy bills with the relaunch of its tracker deal. We look at how it works
-
Three energy firms pay £8m in switching compensation - has your provider paid out?
More than 100,000 customers have received compensation after changing providers, but is now a good time to switch energy suppliers?
-
Moving home: why failing to share your new address could cost you money
When you move home you’ll want to share your new address with family and friends – but being slow to update your contact details with councils, banks and the DVLA can be costly
-
Skipton Building Society to offer deposit-free mortgages for “trapped renters” - everything you need to know about 100% deals
Everything you need to know about how to get a mortgage with no deposit
-
Stamp duty: are you entitled to a tax refund worth thousands?
There are plenty of reasons why homebuyers may be entitled to a stamp duty refund, but it’s important to only claim if you’re eligible for a refund (and beware the claims management companies)
-
House price hotspots: 50 areas where property prices have shot up the most
Which areas have seen the strongest house price growth over the past decade? Discover the towns and locations around the UK where property prices have more than doubled.
-
Faster mortgage support for Universal Credit claimants – what it means for you
If you claim Universal Credit, you can now get quicker support with paying your mortgage. We look at when you can get it and how to access it
-
Should I fix my mortgage rate?
Interest rates are expected to rise again on the back of stubborn inflation, before falling next year. We look at the pros and cons of fixing your mortgage rate and what to consider if you need to remortgage soon.
-
Selling your home: avoid these mistakes to get the best possible price
From boosting kerb appeal to clearing clutter, there are crucial steps to take to ensure you get the highest price when selling your home
-
Interest rates rise to 4.25% - what does it mean for your money?
The Bank of England has increased the base rate for the 11th time in a row. We look at whether rates could rise further this year, and what the latest hike means for your mortgage and savings
