Why it’s time to consider remortgaging for the long-term

Nobody can predict whether interest rates will rise or fall in the future, which can choose from picking a two- or five-year fixed rate product akin to a guessing game. Mortgage rates might be at historically low levels, but there are no guarantees how long these favourable conditions will last. Because of this unpredictability, knowing how long to fix for – with two, three, five, or even 10-years can be a real challenge.

However, consumers picking a shorter fix today could face a much more expensive mortgage market when their fixed-rate term expires, and they seek a new deal. Even those taking out the cheapest mortgages today may find themselves paying significantly more two or five years from now if interest rates rise.

Escape the remortgage cycle

Perenna is creating an alternative that removes the guesswork around mortgage refinancing by giving borrowers complete certainty over their monthly repayments for the long-term. Perenna’s fixed for life mortgages will enable borrowers to lock in their rate for up to 30 years – far longer than even the closest alternative currently available. This new approach will allow borrowers to capitalise on the current cheap mortgage rates while removing the risk of rising repayments in the future.

There are other benefits to Perenna’s fixed-for-life mortgages. Borrowers do not need to undertake the time-consuming and potentially expensive remortgage process time and time again. Mortgage brokers can charge hundreds of pounds for their services, and banks may also charge product fees to customers switching their loan, which can cost thousands over the lifetime of a mortgage.

To add yet more stress to borrowers, remortgages can also take weeks to complete, require new valuations of the property, and create avoidable stress. This is a particular issue at present because the coronavirus crisis has caused delay-inducing disruption for mortgage lenders, estate agents and conveyancers.

Who should consider a Fixed for life mortgage?

Is a fixed-for-life mortgage right for everyone? There are reasons why borrowers of all ages could benefit from these mortgages. Older borrowers stand to gain from the certainty of knowing what their payments will be in retirement rather than potentially facing rising repayment costs in later life. Retirees with pension income linked to inflation also stand to see the cost of their mortgage decrease in relative terms as their earnings continue to rise against their repayments.

This stability is also beneficial for younger homeowners too, particularly in today’s fast-changing world. By eliminating the risk of repayments rising, Perenna’s mortgages provide more security to first-time buyers who have smaller amounts of equity in their homes. And when they move, they can take their mortgage with them if they want to – it’s fully portable.

The unique way Perenna loans are structured also means that borrowers can more effectively satisfy the strict affordability tests applied to mortgage applicants. Customers are always asked to prove if they can afford their predicted monthly repayments, but those taking out a long-term fixed-rate product from Perenna will not face the same harsh stress tests applied to customers taking out shorter-term fixed-rate loans. This means that customers don’t have to settle for a smaller than desired loan amount, putting them in a better position to afford the home they really want.

Full flexibility low lock-in

And if the idea of locking into a mortgage rate for three decades raises eyebrows, there is flexibility too. Although the mortgage interest rate is fixed for life, borrowers are still free to move to another deal if they find one that offers a more competitive interest rate. All Perenna’s mortgages are free to switch from after five years, just the same way you could a traditional mortgage plan. That’s why it’s worth considering a long-term fixed-rate mortgage from Perenna that removes the stress from homeownership and offers fair, stable repayments for years to come. So, to be the first to hear more, sign up to our waiting list via the link: Join Waitlist.

 

 

Locked out of Help to Buy? A fixed for life mortgage could be the answer

Help to Buy has backed more than a quarter of a million house purchases since it launched in 2013.1 The Government-backed equity scheme, which provides a 20% top-up loan (or 40% in London), has helped many buyers to step into a new build property and often with just a 5% deposit.

Yet, Help to Buy is soon set to change and those intending to use the scheme might now find that they want to look to an alternative.

 

What’s happening to Help to Buy?

From April 1st, Help to Buy will be restricted to first-time buyers only. To qualify for the scheme, you must be buying your first home, so for the thousands of second steppers who currently account for 18% of Help to Buy users, this means they can no longer benefit from Help to Buy.

These are not the only changes to Help to Buy though. Even if you still qualify as a first-time buyer, new regional price caps could also put your dream property beyond reach. In many areas of the country, these caps are lower than the average house price, so if you’re looking to buy in a city like York or Cambridge, you might find it difficult to find a place that qualifies for Help to Buy.

In just two years’ time the scheme itself will also come to an end. So, if you’re looking to step into a property but don’t have a large enough deposit, what are your choices?

 

What’s the alternative?

Long-term fixed-rate mortgages could soon offer an alternative route for borrowers to purchase the home of their dreams.

At Perenna, we’re planning to launch a 30-year fixed-rate mortgage that allows buyers to step onto and up the housing ladder with as little as a 5% deposit. With a rate we call ‘flexible fixed for life’, there are no shock increases in repayments. By contrast, the Government’s Help to Buy scheme is an equity loan that you must start paying back after five years and that means your monthly outgoings could rise significantly. Also, do you really want to share the equity you have in your home with your lender, Perenna will not take a share of your equity.

As well as avoiding those higher repayments, customers taking out long term loans will be able to buy without being subject to the strictest mortgage affordability tests on variable rate or short-term fixed-rate mortgages that have blocked many young people from buying a home. For two- or three-year fixed-rate loans, borrowers are required to show they can afford to pay back their mortgage if rates were much higher (usually at lender’s standard variable rate plus 3%) but a long-term fix gives homeowners certainty over their repayments for years to come. This means such stringent stress tests are not necessary.

 

A mortgage for you

With a Perenna long-term fixed-rate mortgage you won’t suffer from the same restrictions in place with schemes like Help to Buy. While Help to Buy has proved a suitable route for thousands of buyers onto the ladder, it’s focused solely on new build properties. This restricts the choice available to buyers with smaller deposits, but with long-term fixed-rates offered by Perenna, borrowers can use their mortgage to fund the purchase of older properties too, just as long as it’s your primary residence. This could be a vital lifeline if you’re looking to buy in smaller towns or villages where there are fewer new-build properties to choose from. If you or your other half has or currently own another property, you can still buy that dream home – our mortgages won’t be restricted to first-time buyers either.

Alongside this, some users of Help to Buy are also already finding it challenging to find lenders that are willing to help them remortgage. Our long-term fixed-rates will have built in flexibility too. Perenna’s products will be fully portable, so you can take them with you when you move, and with early repayment charges for just the first five years, it’s fully possible to switch if a better rate becomes available.

Whether you have fallen outside the Help to Buy scheme rules or are just looking for another option, long-term mortgages will soon be a viable alternative for all borrowers. If that’s a mortgage that sounds like it could meet your housing needs, sign up to our waitlist to be the first to hear more: https://www.perenna.co.uk/join-waitlist