Of course it is back on the agenda again on a couple of fronts.
First, a governmental one, with Boris Johnson seemingly behind a scheme to provide first-time buyers with access to long-term fixed-rate mortgages.
And second with the news that Perenna has secured further funding to offer its fixed for life mortgages up to 95 per cent loan-to-value (LTV) with no charges for switching after the first five years.
Successive governments have supported long-term fixes for good reason, especially in a high or volatile interest environment, but as we know this isn’t one of those eras.
Indeed, with the Bank of England Base Rate not expected to rise much at all in the next couple of years, are they actually required?
Part of me believes that actually this could be the very environment in which long-term fixes could make more of an impact.
Five-year tie-in
Just mentioning 95 per cent LTV will prick up the ears of many potential borrowers, particularly first-timers, who have a five per cent deposit or equity but few, if any, product options.
And that’s only if they have parental support.
We all know that the 95 per cent LTV market space is pretty much empty. Will this change in 2021? Possibly, but it’s unlikely to be a highly competitive one.
One of the major issues always raised against long-term fixes is the length of the early repayment charge (ERC).
For those taking out a 95 per cent LTV mortgage, a five-year tie-in may not seem too onerous at all, although of course the big potential elephant in the room here would be the pricing.
Perenna’s pricing will be determined by long-term covered bonds not traditional balance sheet lending, and therefore they may well be able to marry up long-term certainty with rates not beyond the pale or alternative options.
So, how might advisers react?
Let’s be honest, the advisory community has never been overly enamoured with 10, 15 or 20-year fixed rates.
And why should they be, given the amount that can change during that time and the potential for customer grievance if they are unable to change mortgages without having to pay a big ERC.
But, advice on a five-year deal to a borrower who has very few options presently?
Whether the term is 25-years in theory, the fact the borrower can remortgage or change after five years without any charge, essentially makes it a five-year deal.
And who doesn’t advise on five-year deals?
So, what has perhaps been an imposter product in the market might actually get its feet under the table for good this year.
