Perenna is thrilled to announce that we have been crowned the Banking Innovation Newcomer in the Finder’s Banking Innovation Awards 2023. 

We are committed to pushing the boundaries of innovation in banking, and this award confirms our dedication to transforming the mortgage industry. 

As we work hard to build a nation of happy homeowners, we are delighted to share this exciting news.

Thank you for your continued support and for helping us lead the way in innovation in finance. 

Shining a light on the impact SVR has on affordability

When comparing mortgages, do you focus on the headline rate?

If you do, you’re not alone. But, by looking at the ‘teaser’ rate of a short-term fixed rate (typically between 2 and 5 years), you may be missing the bigger picture. Did you know that the amount you can borrow isn’t usually based on that headline rate? The rate that is actually important in working out how much you can borrow is usually the rate you are charged after the fixed rate period ends. This is known as the ‘reversion rate’. You’ll often see it referred to as ‘standard variable rate’ or SVR.

So, let’s talk more about that…

Standard Variable Rate (SVR)

Fixed rates are a popular mortgage choice. But, when you choose to fix your rate over a shorter-term, you should take note of what happens after the fixed rate ends. The product usually defaults to a higher rate. You may see this next rate referred to as:

• Standard Variable Rate (SVR)
• Follow on rate
• Reversion rate
• Lender’s standard rate

This rate can change at any time and is set by the lender.

The reason this rate is so important is because lenders are required to use it when working out how much customers can afford to borrow.

They use this rate to estimate how much your monthly payments would go up by and check that you can afford it. Additionally, in the UK, lenders must check if you can still afford the mortgage amount you have asked for by calculating your payments using a rate that is at least 1% higher than their current reversion rate. This is called stress testing. Sounds complicated? Don’t worry, let us simplify this for you.

A quick example of how this affects the amount you could borrow

• The ’teaser’ rate on a 2-year fixed product is 5.50%
• The SVR is 8.0%
• The lender will assess whether you can afford monthly payments at a rate of 9.0%

So, in this example, you may be able to afford the monthly repayments at 5.50%. But, to ensure they’re lending responsibly, the lender checks your affordability at 9.0%. This could reduce the amount you can borrow.

Let’s help you to understand by using example numbers. We’ll look at a mortgage of £200,000 over 30 years:

In this scenario, the monthly payment during the fixed rate would be £1,136. But, the lender would need to check that you can afford monthly payments of at least £1,609. That’s £473 more!

Please note, all figures used above are for illustrative purposes only. All information correct at time of publication.

Check how much you could borrow with Perenna

At Perenna, the rate is fixed for the whole term. It doesn’t change to a variable rate. This means we don’t need to stress test your payments. We know exactly what you’ll need to pay each month.

Why not use our calculator to find out how much you may be able to borrow? It’s completely confidential, does not affect your credit score and should only take a few minutes.

You could lose your home if you don’t keep up your mortgage repayments.

The subject of mortgages can be confusing. There are so many on offer and it may be hard to know what’s right for you.

A popular choice is a fixed rate mortgage. This means your monthly payments are guaranteed for a set amount of time. If you like the idea of a fixed rate mortgage, then you have a decision to make. How long do you want to fix your payment for? Of course, there are different options available in the market. You can choose to fix the rate over a shorter term (usually between 2 and 5 years) or a longer term (which could be up to 40 years).

In the UK, there aren’t many longer-term fixed rates out there. We’re changing that with the Perenna mortgage.

Like with anything new, we know it can take time to feel comfortable with a new offering. We appreciate that not everyone fully understands how long-term fixed rates can benefit them. So, we think it’s time to shine a light on some of the myths we’ve come across and show how Perenna’s innovative product can address these. Here are just some of the comments we’ve come across…

Myth 1: They’re not flexible

We say:
Typically, longer term fixed rates offered in the UK have not given borrowers the flexibility they may want. Ten-year fixed rates may come with long early repayment charges which can restrict borrowers.

However, a Perenna mortgage is different. Our product combines long term stability with flexibility. You’ll know exactly what you must pay each month for your whole mortgage term. No teaser rates, no rising payments, no shocks.

Plus, our mortgages are designed to fit around your life. That’s why you can take your mortgage with you when you move home or change your mortgage to another lender or product without charge, after 5 years.

Myth 2: Not many people are interested

We say:
Thousands of people on our waitlist have shown that they are interested. Plus, millions of people across US and Europe already benefit from products like this.

So, why shouldn’t these mortgages work in the UK? Our mortgages have been designed to help:

• first-time buyers looking to borrow a little bit more
• homeowners seeking stability when remortgaging
• later life borrowers wanting to release equity from their property

Myth 3: They’re expensive

We say:
You can’t compare apples and oranges.

Whilst a Perenna mortgage may have a higher rate than some other ‘teaser’ rates on offer, you need to think about how they may compare longer term. For example, if you’re thinking about fixing your rate over a short term, you’ll need to consider what happens when that deal comes to an end. Will you be able to afford a new mortgage if rates rise or your circumstances change? We want to remove this risk.

We don’t think homeowners should have to worry about rates changing or being denied access to mortgage products in the future. That’s where a Perenna mortgage comes in. By fixing your rate for up to 40 years, you’ll know exactly what you must pay each month for your whole mortgage. Can you put a price on peace of mind?

Myth 4: Rates will come down so no need to fix for longer

We say:
Everyone loves a good deal. But is it wise to hazard a guess on what could be your biggest financial decision? Instead of trying to predict the future, you will know exactly what you’ll pay each month with a Perenna mortgage. This puts you back in control of your finances so that you can plan for your future.

Yes, rates could come down, or your circumstances could change. And that’s why our product comes with flexibility as standard. If you want to change, that’s no problem. You can do so without charge after 5 years.

Could a Perenna mortgage be for you?

If you’d like to find out how much you could borrow, why not use our mortgage calculator. It’s completely confidential, does not affect your credit score and should only take a few minutes.

You could lose your home if you don’t keep up your mortgage repayments.

We are delighted to share that we have now received our full banking licence from the Prudential Regulation Authority and Financial Conduct Authority.

This marks a key milestone for us, allowing us to introduce our innovative long term fixed rate mortgage products to the UK.

Unlike the US, Denmark and other European countries, the UK market is dominated by variable and short-term fixed rate products. They leave mortgaged households dangerously exposed to rising rates and first-time buyers struggling to get on the housing ladder. Due to this, more than a million UK households are facing an increase of over £500 to their monthly mortgage costs by the end of 2026.¹  In the UK, borrowers are forced to speculate on their biggest debt due to the limited choice of products, which is not the case in other countries.²

Our unique proposition is created by a funding model which relies on issuing covered bonds to investors seeking long-term stable income, such as pension funds and insurance companies. This allows us to develop a range of innovative products aimed at addressing structural problems in the mortgage market for first time buyers, second steppers and later life homeowners.

Arjan Verbeek, CEO & Co-Founder, Perenna, said ‘’We’re introducing much needed structural change to the UK. In other countries, billions of pounds of pension savings are channelled into the real economy using covered bonds. Together, our unique funding model and banking licence will enable us to do exactly the same in the UK and unlock the housing market, an important part of GDP.”

Colin Bell, COO & Co-Founder, Perenna added “Our mission is to create a nation of happy homeowners. We’re excited to offer our flexible products to consumers who, for too long, have been left underserved. Our product offers improved affordability, certainty of monthly payments, and flexibility through low ERCs. We want people to get on with their life and not worry about their mortgage product.”

The first step in our journey is to offer mortgages exclusively to eligible borrowers on our mailing list. If you’re looking for a mortgage, why not use our calculator to find out how much you may be able to borrow? It’s completely confidential, does not affect your credit score and should only take a few minutes. And if you’d like to be considered for our exclusive launch, simply sign up to our mailing list at the same time.

We look forward to changing the UK mortgage market for the better.

Pictured above, Perenna Founders from left: Colin Bell, Arjan Verbeek and Hamish Peacocke

Notes
1. https://www.bankofengland.co.uk/financial-stability-report/2023/july-2023
2. https://hypo.org/app/uploads/sites/2/2023/07/EMF-Quarterly-Review-Q1-2023.pdf

More than 700,000 fixed-rate mortgages are set to mature in 2021 and the borrowers behind these mortgages will soon face the task of searching for a new, competitive deal to avoid switching onto their lender’s Standard Variable Rate (SVR). For many, their most difficult decision will be deciding how long to fix for.

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.

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% 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.