Lender and pensions insurer team up to offer 40-year fixed mortgages

·3-min read
Specialist lender and pensions insurer join hands to offer 40-year fixed mortgages
The longer-dated mortgages will be the first product of its kind in the UK market and will help borrowers break with the trend of switching deals every two or three years. Photo: Getty

UK lender Kensington Mortgages and Rothesay, the UK’s largest pensions insurance specialist, have teamed up to to offer fixed-rate mortgages of up to 40 years.

The longer-dated mortgages will be the first product of its kind in the UK market, and will help borrowers avoid the hassle of switching deals every two or three years.

The mortgages, know as “Flexi Fixed for Term”, will give borrowers the chance to lock their mortgage repayments at the same level for the full term of their loan, which can be anywhere between 11 and 40 years.

The move comes amid concerns about rising inflation, which recently hit a 10-year high of 4.2% in October, increasing expectations that the Bank of England will need to raise interest rates to tackle it.

The Bank of England’s chief economist Huw Pill warned on Friday that the “burden of proof” was now in favour of increasing the cost of borrowing at the central bank's next meeting in December.

Mark Arnold, chief executive at Kensington Mortgages, said that while many homeowners had only ever experienced very low interest rates, this was likely to change.

“Nothing lasts forever and it looks very likely that we will see a succession of interest rate hikes, and we may begin to slowly approach an historical average,” he told the Financial Times

Read more: How much can I borrow on a mortgage based on my salary?

“A fixed-for-term mortgage — already very popular in some parts of continental Europe — is likely to become increasingly attractive in a rate-rising environment.”

Rates for the new mortgages will be determined by the fixed term chosen and amount borrowed. A 95% loan-to-value (LTV) mortgage will be available for new purchases and 85% LTV for remortgage.

For the longest-dated mortgages of 40 years rates will start at 3.34%, at a 60 per cent LTV.

For 35 years, rates will start at 3.16%.

For customers choosing shorter mortgage terms, rates will also be lower. A 15-year term will start at 2.83% at the same LTV. For 25- and 30-year terms, rates will be available from 2.85% and 2.90% respectively.

The UK government has previously encouraged longer-term fixed rate mortgages, first raising the idea in the Conservative party's election manifesto in 2019.

Last year, prime minister Boris Johnson revealed further details of plans to introduce long-term fixed-rate mortgages with 5% deposits to help get more people onto the property ladder.

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John Glen, economic secretary to the Treasury, said: “Greater product choice creates more competition and more options for consumers, in this case those who value certainty in their repayments over a longer period of time.”

The partnership makes sense for pensions insurer Rothesay, which has more than £60bn ($80.6bn) in assets, as it needs fixed, long-term assets to match up with its fixed, long-term liabilities. Rothesay is also set to announce further partnerships with other lenders.

Rothesay “firmly believe that these mortgages can provide the certainty that many borrowers are looking for,” said Prateek Sharma, chief investment officer. 

“We are always looking for innovative ways to invest in long-term, secured and high-quality assets,” he said.

Watch: How does the 95% mortgage scheme work?

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