A new lender is about to launch a 50-year fixed rate mortgage: is it a good idea?

Homebuyers may soon be able to take out 50-year mortgages, with their monthly repayments remaining the same for the entire term.

A new mortgage lender called Parenna has been licensed by the bank of england provide fixed rate deals that can last up to half a century.

Here, which one? explains how a 50-year mortgage might work, plus advice on how long to lock in your rate during times of economic uncertainty.

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How Parenna’s 50-Year Fixed Rate Mortgages Will Work

Digital lender Parenna is set to launch a range of long-term fixed rate mortgages, after being approved by the regulator.

The UK-based lender will initially offer 30-year fixed-rate contracts, before moving to 40- and 50-year terms.

The agreements would be fixed for life, meaning the borrower’s interest rate would be locked in for the life of the loan, rather than the traditional two or five years.

Parenna’s 30-year mortgage will be launched within the next six months. Potential customers can sign up for more information on its website.

  • Learn more: how fixed rate mortgages work

Why are these new offers important?

It may be some time before Parenna’s 50-year mortgage becomes available, and it remains to be seen exactly how it will compare in terms of interest rates and fees.

Lender’s plans match current trend of borrowers looking to lock in rates longer as mortgage rates rise due to soaring inflation.

Parenna may also be looking to get a head start. The government announced in June that it would conduct a broad review of new ways to improve the affordability of mortgages for first buyers.

Ideas he put forward included longer-term mortgages and mortgage agreements that could be passed down between generations.

Who can take out a 50-year mortgage?

It remains to be seen who will qualify for a 50-year mortgage, but we can assume it will only be available to younger borrowers.

Longer mortgage terms have become more common in recent years, but no lender currently offers such long terms.

Data from the Financial Conduct Authority shows that 41% of homebuyers are buying terms over 25 years, a figure that rises to 66% of first-time buyers.

Currently, many lenders theoretically offer terms up to 40 years, but most require the mortgage to be paid off before age 70 or 75. This means that the borrower would have to be relatively young to qualify for such a long term.

  • Learn more: how to get the best mortgage deal

Long-term fixings and prepayment charges

When you take out a mortgage, one of the biggest questions is how long it will take to fix your rate.

Most borrowers fix for two or five years and then move on to a new agreement. A range of other options are available, including fixed terms of one, three, seven, 10 and 15 years.

Longer-term solutions offer security against rising rates, but they tend to come with higher rates and prepayment charges (ERC).

For example, if you take out a five-year fix and then decide to prepay it, you will have to pay an ERC. These are charged on a sliding scale, so you can pay 5% of the loan in the first year, 4% in the second, and so on.

Parenna says its deals will have the same ERC terms as the five-year patches, with no fees to pay if you switch after five years.

Will mortgage rates continue to rise?

With inflation now above 10% and the prospect of new base rate increasesit’s reasonable to think that striking a longer deal now is a sensible move.

The truth, however, is that we simply don’t know what will happen to medium and long-term mortgage rates.

For example, you might pay around 3.2% for a two-year solution at 60% loan-to-value now, but just 10 months ago you would have paid less than 1%.

So if you’ve been pegged for five years now, you’ll be okay if rates go up to 5% in two or three years, but you’ll pay more than expected if they go back down to 2%.

With so much uncertainty in the economy, fixing longer will give you the comfort of knowing that your repayments won’t increase. But it’s important to weigh your options and consider your own financial situation. If in doubt, seek advice from a mortgage broker.

The latest mortgage offers

Mortgage rates have been rising since the start of 2022, and lenders are regularly chopping and changing their offers in response to changes in the base rate.

If you are a first-time buyer, you can check out our story at the best mortgages at 90% and 95%. This is regularly updated with the cheapest rates on low deposit mortgages.

Borrowers with larger deposits can find the latest offers from our article at cheapest mortgage rates.

Finally, if your CDD is coming to an end and you are looking to change, our article on get a good deal by remortgaging offers a step-by-step guide to make sure you don’t pay more than necessary.

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