Insurance

UK insurer Rothesay prepares to offer 25-year mortgages


A specialist pensions insurer is poised to launch 25- and 30-year fixed-rate mortgages in the UK in an attempt to offer greater certainty for borrowers as the threat of interest rate rises increases.

Rothesay, the UK’s largest pensions insurance specialist with more than £60bn in assets, plans to team up with a British lender to finance the longer-dated mortgages, according to two people briefed on the situation. The move is set to be unveiled in the coming weeks and terms have not been disclosed.

Lengthening the traditional fixed-rate mortgage would break with the UK trend of switching deals every two or three years — a process that can involve large fees and lead to higher monthly bills — and is a stated priority of the UK government.

Rothesay said: “As the UK’s largest specialist pensions insurer, we are always looking for innovative ways to invest in long-term, secured and high-quality assets. Through these new products, we’re delighted to support increased home ownership in the UK, helping the government’s ambition to bring mortgages to the market which offer long-term certainty for the future.”

The consumer lending market in Europe is dominated by the retail banks, but as tighter regulation forces them to hold more capital, non-bank lenders are stepping in, attracted by the potential long-term, steady returns.

In May global investment manager M&G launched the first long-dated fixed-rate mortgages in Ireland with its origination partner Finance Ireland, the country’s largest non-bank lender. The move gave homeowners access to a range of fixed-rate mortgages of up to 20 years. M&G declined to comment but one person close to the situation said it was now looking at the UK market.

In March online broker and lender Habito launched a long-term fixed-rate mortgage with a maximum deal period of 40 years. Rates for the Habito One mortgage product start at 2.99 per cent at loan-to-values ranging from 60 to 90 per cent. Daniel Hegarty, founder and chief executive of Habito, said at the time that the product would remove the need to remortgage every two to five years, which he described as “costly, time-consuming and repetitive”.

The launches of longer-term mortgages come as expectations grow that the Bank of England will raise base interest rates to try to calm inflation, driving consumers to look for ways to protect themselves against rising costs. “With the prospect of interest rates going up there ought to be plenty of demand from borrowers for such a product,” said Joseph Dickerson, managing director at Jefferies.

The average mortgage fixing period in the UK has increased from about 2.3 to 3.5 years over the past decade, according to Financial Times calculations based on Nationwide market data.

Longer-dated products are more common in the US where, for example, Citigroup offers borrowers a 30-year deal fixed at 3.25 per cent. In France, BNP Paribas is offering borrowers 15-year loans from 1.05 per cent.

As of June 2021, 17 per cent of Rothesay’s investments were in secured residential lending. It insures the pensions of more than 850,000 people and pays out, on average, more than £230m in pension payments each month.

Long-dated fixed rate mortgages are an attractive area of the market for the pensions insurer, because it needs fixed, long-term assets to match up with its fixed, long-term liabilities.



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