Next March, the UK’s Help to Buy scheme will be permanently withdrawn. Introduced in 2013, the programme was brought in as one of several measures to restart the housing market in the wake of the financial crisis of 2008.
Help to Buy gives homebuyers the opportunity to purchase new-build homes with a deposit of just 5%. As the average deposit requirements of most major lenders fall between 10% and 20%, Help to Buy offers a lifeline for those who would otherwise struggle to come up with this kind of money.
5% mortgages are in comparatively short supply on the High Street and are often accompanied by highly selective eligibility requirements, which is precisely why the introduction of an all-new mortgage at Perenna could come as welcome news to anyone with affordability concerns.
The UK’s first and only 50-year fixed-rate mortgage
Perenna reported this week that a commission has been granted by UK regulators to offer a fixed-rate mortgage over a term of 50 years. The product will be initially introduced as a 30-year fixed-rate mortgage, after which further options will be rolled out for up to five decades.
These products could prove highly disruptive for the sector, given how most major lenders offer fixed-rate mortgages over a maximum of 10 years.
Importantly, Perenna’s long-term fixed-rate mortgages will be offered to first-time buyers in the form of a 95% LTV loan, requiring a deposit payment of just 5%. Homeowners looking to relocate or remortgage will also be eligible for Perenna’s long-term fixed-rate products, enabling them to lock in competitive rates of interest for the life of their loan.
Benefits for private borrowers and businesses
Speaking on behalf of Perenna, CEO and founder Arjan Verbeek highlighted the potential benefits of these new long-term loans for private borrowers and businesses alike.
“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 SMEs and infrastructure,” he said.
“Perenna will support consumers with buying their first homes, moving home, supporting themselves in retirement, and helping the transition to net zero. Perenna looks forward to working with other initiatives to increase private sector investment in the real economy and address the structural challenges we face.”
More details are expected to be confirmed by Perenna ahead of the launch of the new products, which are expected to offer 30- to 50-year fixed interest rates of around 4% to 5%. However, this could be significantly influenced by economic shifts in the interim and the general state of the mortgage market at the time.
The approval of the new product comes as the Bank of England once again raises interest rates in an effort to quell inflation, which is now at a 40-year high. Further interest rate hikes are almost certainly on the cards, with inflation said to peak at 12% or higher in the New Year.
Average house prices continue to break records across the UK, with the biggest annual price increases of all having been recorded in London. Even as the UK’s escalating living-cost crisis was hitting households hard, the average price of a home in London hit an astonishing £526,183 in May, more than 8% up on the previous year.
Detached homes in London saw the biggest annual price growth of all, up just over 11% to reach £1,082,09, compared to £973,866 a year earlier.
“With the Bank of England putting up interest rates more than once this year, many house hunters have also established a stronger sense of urgency to buy before further rate hikes,” commented Richard Davies, managing director of London agents Chesterton’s.
“Our branches receive inquiries from families, couples, and investors, but, particularly post-pandemic, we are seeing an uplift in the number of international students, international buyers, as well as office workers who require a pied-à-terre closer to work.”