Long-term imposter product may finally become relevant as a high LTV option

Bob Hunt

29 January 2021

The US Presidential inauguration had much to commend it, not least the poem from Amanda Gorman. To hear her words - at just 22-years old - and for them to be so incredibly powerful, wise, of the moment but lasting, was a complete inspiration.

Of course, as soon as the inauguration was over, the Twitter-scape went to work and did its thing.

The funniest video I've seen is a beautifully-edited one of Shaun Williamson (Barry from EastEnders) apparently entertaining the assembled Presidential Inauguration dignitaries with a powerful version of Labi Siffre's 'Something Inside So Strong'.

To the untrained eye you might think Shaun was truly there until you realise it's from a performance of his at a UK Bowls tournament in 2014. Still, you can't help thinking that if Trump had won, Shaun might have got the call.

But anyway, sometimes you wonder if these things might have really happened. Given the world in which we live in - and I'm thinking of press conferences being held in the parking lots of landscaping businesses - would it be so odd to have Barry from EastEnders singing his heart out to Joe Biden?

He seems like an imposter, but he might still have filled a role, was entertaining and would undoubtedly have given us something to talk about.

It got me thinking about who, or what, does that in our sector and I stumbled upon long-term fixed rate mortgages - a hardy perennial and constant fixture in our market over the last 20 years or so, and yet still probably suffering from imposter syndrome because take-up has never truly taken off.

And, of course, it is back on the agenda again, on a couple of fronts. Firstly, a Governmental one, with Boris Johnson seemingly behind a scheme to provide first-time buyers with access to long-term fixed-rate mortgages. And secondly with the news that Perenna has secured further funding to offer its fixed for life mortgages up to 95 per cent loan-to-value (LTV) with no charges for switching after the first five years.

Successive governments have supported long-term fixes for good reason, especially in a high or volatile interest environment, but as we know this isn't one of those eras.

Indeed, with the Bank of England Base Rate not expected to rise much at all in the next couple of years, are they actually required?

Part of me believes that actually this could be the very environment in which long-term fixes could make more of an impact.

Five-year tie-in

Just mentioning 95 per cent LTV will prick up the ears of many potential borrowers, particularly first-timers, who have a five per cent deposit or equity but few, if any, product options.

And that's only if they have parental support.

We all know that the 95 per cent LTV market space is pretty much empty. Will this change in 2021? Possibly, but it's unlikely to be a highly competitive one.

One of the major issues always raised against long-term fixes is the length of the early repayment charge (ERC).

For those taking out a 95 per cent LTV mortgage, a five-year tie-in may not seem too onerous at all, although of course the big potential elephant in the room here would be the pricing.

Perenna's pricing will be determined by long-term covered bonds not traditional balance sheet lending, and therefore they may well be able to marry up long-term certainty with rates not beyond the pale or alternative options.

So, how might advisers react?

Let's be honest, the advisory community has never been overly enamoured with 10, 15 or 20-year fixed rates.

And why should they be, given the amount that can change during that time and the potential for customer grievance if they are unable to change mortgages without having to pay a big ERC.

But, advice on a five-year deal to a borrower who has very few options presently?

Whether the term is 25-years in theory, the fact the borrower can remortgage or change after five years without any charge, essentially makes it a five-year deal.

And who doesn't advise on five-year deals?

So, what has perhaps been an imposter product in the market might actually get its feet under the table for good this year. Cometh the moment, cometh the Barry from EastEnders of mortgage options. Your time might finally be now.