One of the biggest reasons for cases to stall after placement with lenders was down to old ‘affordability’. With high house prices and rates at current levels, even stretching out terms to near 40 years still doesn’t seem to be helping. But why is this? Simply put, it is because many lenders are still basing affordability on SVR’s + a margin. At the time of writing this, those and SVR’s are around the 8% mark.  

At such elevated levels it really is the few and not the masses that can afford their homes. Switching lenders may not be possible, and borrowing the right amount for that dream house may not be achievable. Ultimately this is stalling the market and leading to lower transactional levels. In fact, remortgages are at their lowest levels since 1999!* 

We have seen lenders reprice down over recent weeks, which is really great news as this will reduce your clients’ monthly payments. However Base Rate remains unchanged and many lenders base affordability on the SVR which is typically 3% above this.  

The question is why do so many lenders still do this? The requirement to stress at 3% over Base Rate disappeared when the Bank of England (BOE) affordability tests were scrapped in favour of MCOB rules which ensure rises of 1% or 100 basis points are affordable over the first 5 years. 

Are lenders being overly prudent? Is there a belief that interest rates could rise further? With inflation somewhat under control (we, for one, are keeping our fingers crossed), all things look a lot more positive. A fact that appears to be backed up by the decreasing SONIA swaps. So, given this, will we see SVRs come down? 

My view is yes and no. We may see some lenders reduce their SVR margin (squeeze down that typical 3% cushion) or instead, they may simply leave the SVR alone and introduce a new method for new lending. Of course, we could wait for BOE to reduce base rate, but that could be a while! 

It does seem like some change is in the air though. Santander, in an attempt to assist new borrowers, has moved away from stressing on SVRs and has now implemented a ‘managed rate’ which is lower than their SVR. This allows them to move as they see fit, rather than when the BOE move rates. This is an interesting move and I think other lenders will be watching keenly from the sidelines.  

The great thing about this is that more cases should, in theory, ‘fit’ and the loan amount you requested should hopefully work! But this is just one lender and it’s not a huge decrease, so perhaps we shouldn’t get carried away just yet. 

There is another option though, one that moves away from SVRs, managed rates and fingers in the air methods… and that is affordability based on payrate. This is typically only available when clients take out deals of 5 years or more. The good thing here is that a payrate of say 5.5% will of course give a lot more borrowing power and affordability breathing space when compared to both an SVR and a managed rate model. 

At Perenna, we are able to give clients great borrowing power and affordability. Our long-term fixed rates (20 to 40 years) remove all rate gambles and allow lending up to 6 x income subject to criteria.  And, importantly, affordability is based on payrates. 

Longer term fixed rates may be an alien concept in the UK, but are commonplace in other well-established markets like America, Australia and many European countries. The reason long-term fixed rates haven’t necessarily worked previously is likely down to a lack of flexibility, long and expensive ERCs and the absence of recurring income (proc fees) for those who recommend them.  

That’s where we come in. Our offer addresses all these shortcomings. With a Perenna mortgage, your client can fix their monthly payments for up to 40 years with the ability to port or borrow more. The ERC is only 5 years and there’s trail commission for you when you review your customers’ needs. Your client can even PT onto a lower rate at the end of the 5-year period if rates come down! 

Winning over brokers and changing hearts and minds to a more European concept may take some time. The positioning of long-term fixed rates with clients will be key. If presented as a standard 35-year fixed rate, borrowers may be hesitant. Personally, we may not know what will happen in 3 or so weeks’ time, let alone in 35 years! However, positioning it as a mortgage that provides long-term stability with a short 5-year tie-in makes it significantly different. It offers certainty with flexibility. Who wouldn’t want a mortgage that allows you to stay on if rates go up but provides the option to switch to a lower deal if they go down? It’s akin to having a ‘get out of jail free’ card in Monopoly! 

Some other news that may be received with mixed feeling is terms of up to 50 years, on one hand the amount of interest paid will be high, however by taking a long term like this, young first-time buyers could achieve the dream of home ownership instead of a life in rented. Could 50 years be the new 25 in years to come? One to watch… 

I’m sure 2024 will have lots of changes and plenty of surprises in store! 

Tim Sorrell, National Account Manager 

*source@ Remortgaging falls to lowest level since January 1999 – Mortgage Solutions

Correct at time of publishing.

The 2023 mortgage market closes once again with affordability being one of its biggest challenges. This has been a consistent theme for many years irrespective of the economic backdrop or whatever else may be going on in the world.  

The mortgage trade press in December 2023 reports some notable headlines in relation to affordability including, ‘FTB sizing down to step onto property ladder’ and ‘Searches for marathon mortgages top 70% in 2023’. If anything calls for an alternative approach to affordability these headlines are it!  

At Perenna, our alternative approach means that we can and will get more borrowers who want to own a home and can afford it, onto the property ladder. 

Our funding model, which does not rely on retail deposits, is more akin to the tried and tested model across Europe and the USA, using long-term covered bonds as the mechanism. Given the long-term fixed nature of the proposition Perenna has no SVR or ‘revert’ rate (and therefore no SVR based stress test)! This means we can unlock higher LTIs for those who need it, whilst giving the flexibility of short ERC period (5 years). 

If you team this with the fact that ‘age is just a number’, it works for all consumers at any stage in their homebuying journey. At Perenna, we have no maximum age limits which would restrict term and therefore affordability, working in support of the current priories of the consumers mortgage requirements, whatever they may be.  

Certainty, stability, and no payment shocks complimented by 6 x income (subject to criteria of course) and our alternative approach to affordability means we can offer some of the, if not the ‘highest affordability’* in the market.  

Brokers remain at the forefront of what we do, and for this reason Perenna pay a ‘trail commission’ on our long-term fixed rates.   

And there’s more to come. At Perenna, we’re always looking for ways to help borrowers. So watch this space!   

Deborah Reeves, National Account Manager 

*Perenna launches “highest affordability” mortgage in the market to first-time buyers  | Perenna Brokers 

Correct at time of publishing.

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 with our valued broker community. 

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

Correct at time of publishing.