Gill will take up the role of chief risk officer on 2 March, subject to regulatory approval. He will leave his position as director of investment risk at the Pension Protection Fund, a body that protects savers with defined benefits pension plans.
His arrival follows Perenna’s application for a banking licence which was lodged in Q4 2020.
Perenna intends to become the UK’s first pure covered bond bank issuing mortgages fixed for life for up to 30 years. To make the mortgages more widely appealing, borrowers will only be tied in for a short period, for example five years.
Covered bonds are bonds that are issued to investors which promise to pay a fixed interest rate for a fixed term in return for a cash investment. They are ‘covered’ because they are backed by the issuing bank. This means the investor can pursue the bank for redress should it collapse.
Perenna’s model will be to issue covered bonds to institutional investors such as pension companies and insurers as investments, and use their money to lend to borrowers. Because a bond agreement can come with a long fixed term, it will allow the bank to offer fixed rate mortgages for two or three decades. The cost of the mortgage is linked to the price of the covered bond.
The lender plans to launch its first range in quarter three, once it has been approved for a banking licence with restrictions. Perenna says the pandemic has not interrupted its schedule to roll out the lending model.
When the bank set up its operations three years ago, it was done so on the basis that the bank and its staff could operate remotely if needed.
Although the bank will eventually just rely on covered bonds as its source of funds for lending, it can initially rely on capital raised by the bank or warehouse funding to showcase the mortgage products to attract interest from bond investors.
A similar approach to lending is used in Denmark’s banking and pensions industry.
Earlier this week, three Danish banks began offering 20-year mortgages fixed at 0 per cent.
The mortgages are tied to the covered bonds used to fund them and the Danish lenders act as brokers between the borrower and the investor.
Instead of making money through interest rates they generate income from fees. The coupon rate is passed on to the borrower.
Perenna says it is too early to indicate what interest rate it will charge borrowers for a mortgage.
Arjan Verbeek, chief executive of Perenna, said: “We are looking forward to working with Russell, who shares our belief that there is a big gap in the UK mortgage market for long term flexible fixed rate mortgages.
“Russell’s unique risk management, actuarial and pensions background will be a real asset to the Perenna team and instrumental in helping us to manage risk, whilst delivering on our mission.
Gill said: “I have long thought that people want to buy a home of their own, but the current mortgage system in the UK has unfortunately created barriers for many and pushes interest rate risk on customers. Perenna’s long term fixed rate mortgage will be ground-breaking for customers and its covered bond framework has novel benefits for risk management and broader society.”
