Perenna, a new mortgage lender, has obtained its unrestricted banking license, making it the first start-up to do so in 2023. The company plans to offer borrowers the option to fix their home loan interest rate for up to 30 years, a product that is common in many countries but not in the UK. Unlike the typical fixed-rate deals in the UK, where the interest rate remains the same for a shorter period, Perenna’s flagship product allows customers to fix their rate for 20 or 30 years. This provides borrowers with security and certainty about their monthly payments for at least two decades.
One unique feature of Perenna’s offering is the ability for borrowers to switch to another lender without incurring early repayment charges after the initial five years. Early repayment charges usually range from 1% to 5% of the mortgage amount. Perenna’s Chief Operating Officer, Colin Bell, believes that their mission is to create happy homeowners by offering improved affordability and flexibility through low ERCs.
Apart from providing security and certainty, Perenna’s products offer additional benefits. First-time buyers can potentially borrow more as the company doesn’t stress test against interest rate risk. It also allows first-time buyers to secure a mortgage with a minimum deposit of 5%. Perenna will also enable customers to borrow between five and six times their income, which is higher than most lenders who typically allow up to 4.5 times annual income.
Perenna aims to help mortgage prisoners, who are stuck on their current lender’s standard variable rate, and older borrowers looking to release capital from their home without being limited by a shorter mortgage term. Nicholas Mendes, mortgage technical manager at John Charcol, welcomed Perenna’s arrival, noting that their 30-year fixed-rate product with a five-year early repayment charge is unrivaled. However, it is expected that the mortgage rates will range between 6.5% and 7.5%.
Perenna’s unique funding model relies on issuing covered bonds to investors seeking long-term stable income, such as pension funds and insurance companies. This allows them to offer their range of long-term fixed deals, benefiting first-time buyers, second steppers, and later life homeowners. The company will initially offer its mortgages to people on its waitlist before opening to the wider public later this year.
Overall, Perenna’s entry into the UK mortgage market brings much-needed structural change and aims to unlock the housing market by utilizing its unique funding model and banking license.
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