New mortgage lender set to offer fixed-rate deals of up to 50 YEARS
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A new lender has been granted a licence by UK financial regulators to offer mortgages with fixed rates of up to 50 years in a move aimed at helping borrowers manage soaring inflation.
Perenna, a UK-based specialist lender, is initially planning to provide home loans that lock in rates for 30 years.
It will then roll out products with even longer terms, including the 50-year mortgage.
Its approval comes as the Bank of England raises interest rates from 1.25% to 1.75% in a bid to tackle rapid inflation, which has reached a 40-year high of 9.4% in Britain.
While higher interest rate is good news for those with savings, it's bad news for prospective homeowners as it means an increase in monthly repayments on their mortgages.
But fixing a long term mortgage now might save you money down the line, as interest rates might go up again.
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Banks typically provide mortgages with fixed rates of up to 10 years, with Ray Boulger, senior manager at broker John Charcol, saying the most popular ones last between two and five years.
But Perenna's would break with that trend, offering the longer term loans which currently offer rates of 4.5% to 5.5%
Arjan Verbeek, the lender's chief executive officer and founder, said the introduction of the longer term mortgages was an attempt to "resolve the affordability issues in the market".
Greg Cunnington, mortgage broker at LDN Finance, said there were two other lenders, Kensington and Habito, offering the next longest lifetime fixed rates of between 25-35 years.
It comes as house prices in the UK reached a record high last month
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Data from property site Rightmove on Monday showed the average value had dipped 1.3 per cent in August to £365,173.
A fixed rate mortgage is a mortgage where your repayments are guaranteed to stay the same across a set period of time.
Many prospective homeowners are being urged to get fixed-rate mortgages now to stop themselves facing further interest rate hikes.
Anyone on a fixed rate now isn't affected by current price hikes but when they come to the end of that deal, interest rates could be higher.
In the UK there are still almost two million people on standard variable-rate (SVR) mortgages.
A SVR is when your mortgage payments can change depending on the rate set by your lender.
If the around two million were to fix now, they're likely to get a better rate on their mortgage as SVR mortgages are usually higher than fixed-rate ones.
Should I fix for longer?
With interest rates at 1.75%, Nicholas Mendes, a mortgage technical manager at mortgage broker John Charcol, said the Bank of England's recent rate rises had seen some looking for fixed deals.
He said: "This is despite rates increasing at the fastest pace since records began, as we are still in a period where rates are still relatively cheap compared to historically."
If you're thinking of fixing a long term deal, Nick said it was worth considering a number of factors.
First, Nicholas said a longer-term fix could be more expensive over the course of 30 to 50 years.
"It is difficult to predict any future rate rises over the fixed rate period," he said.
"They could continue to increase or fall, as we have seen in the last 10 years.
"In these circumstances a household which chooses a 2-year fixed would benefit more than those tied in on a longer deal."
Second, locking into a longer term mortgage can be inflexible.
This is because interest rates, which impact what your monthly repayments are, can fluctuate.
Sometimes they may drop, meaning if you're locked in on a higher rate, you may be paying more than you could if you were on a SVR or if you'd locked in at a lower rate.
Nicholas said this was worth considering, but added: "The caveat to this is security and what price you are willing to pay to have this."
And lastly, Nicholas said to consider early repayment charges (ERC).
An ERC is a fee you pay to your mortgage lender if you want to pay off a larger portion of your mortgage in one go.
You might also be charged a fee if you want to end your mortgage deal before it is due to finish.
The fees you pay will depend on the size of your mortgage and specific lender.
Nicholas said "most" fixed rate mortgages will have a clause like this so is one thing to bear in mind when looking at longer term loans.
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However, he said Perenna's did not have any ERC's, which was a market "first".
We previously revealed the pros and cons of taking on longer term fixed-rate mortgages.