UK lender to offer 40-year fixed rate mortgages
UK lender Kensington Mortgages will launch fixed rate mortgages of up to 40 years on Tuesday in what will be one of the first such products in the UK market.
The lender has partnered with Rothesay, Britain’s largest pension insurance specialist, which has more than £ 60 billion in assets, to fund longer-term mortgages.
Its “Flexi Fixed for Term” mortgages will allow borrowers to fix the rate paid on their mortgage for the duration of the loan, between 11 and 40 years.
Long-term mortgages come amid concerns about rising inflation and rising expectations that the Bank of England will have to raise interest rates to meet them.
Mark Arnold, managing director of Kensington Mortgages, said that while many homeowners have only experienced ultra-low interest rates, the environment is likely to change.
“Nothing lasts forever and it seems very likely that we will see a succession of interest rate hikes and can start slowly approaching a historic average again,” he added. “A fixed-term mortgage – already very popular in parts of continental Europe – is likely to become more and more attractive in a rising rate environment. “
The prices will depend on the fixed term chosen and the amount borrowed. A 95 percent mortgage on value will be available for new purchases and an 85 percent LTV for re-mortgages.
For the longest 35-year and 40-year mortgages, rates will start at 3.16% and 3.34% respectively, at an LTV of 60%. The rates on the shorter mortgage maturities will be lower – starting at 2.83% for a 15-year product at the same LTV. For terms of 25 and 30 years, the rates will be available from 2.85% and 2.90% respectively.
The FT reported last month that Rothesay was preparing to launch longer term mortgages in the UK.
Extending the traditional fixed rate mortgage is a declared priority for the UK government and would break with the trend to change supply every two or three years.
John Glen, Economic Secretary to the Treasury, welcomed this development. “A greater choice of products creates more competition and more options for consumers, in this case especially those who value the certainty of their refunds over a longer period,” he said.
Long term fixed rate mortgages are an attractive area of the market for Rothesay as it needs long term fixed assets to match its long term fixed liabilities. The pension insurer expects to announce other partnerships with other lenders in the near future.
“We are always looking for innovative ways to invest in long-term, secure and high-quality assets,” said Prateek Sharma, chief investment officer at Rothesay. He added that the company “strongly believes that these mortgages can provide the certainty that many borrowers are looking for.”
Online broker and lender Habito launched a fixed rate long-term mortgage in March with a maximum transaction period of 40 years departure at 2.99 percent. Borrowers pay a rate of 4.45 percent for a term of 31 to 35 years on 60 LTVs, rising to 4.65 percent for a term of between 36 and 40 years.