The road to recovery has been a long one since the financial crisis in 2008 and its impact on homeowners has been the driving force behind much of the regulatory developments that have since taken place in the UK.

After the crisis, the regulator introduced a new lending framework through the Mortgage Market Review and, although established for the right reasons, there have certainly been unintended consequences.

In particular, the requirement on lenders to stress test has, in part, made it harder for some borrowers to get onto the property ladder. Was this a problem of the change of regulations or is it really the product choices consumers have? For me it is the latter, as affordability controls were imminently sensible.

The impact these measures are having on some buyers can clearly be seen in recent claims that the Bank of England (BoE) will loosen mortgage lending rules to remove barriers to these borrowers.

However, it’s not this legislation that’s to blame, but a commitment to the status quo of Britain’s short-term mortgage market. If we’re to help more people onto the housing ladder, we need to innovate and find new approaches to lending, a longer-term approach, that can safely remove some of these barriers for buyers.

Legacy mindsets

The UK mortgage market is currently founded on short-term fixed rate products. This approach works well for lenders that leverage deposits and credit swaps to fund their mortgages, but it does very little to help homeowners.

Borrowers must go through the process of remortgaging every two, three or five years, and this means they could find themselves facing very different, and potentially more unaffordable mortgage rates when it comes to remortgaging. This also comes with costs each time, as well as often periods on a standard variable rate (SVR).

In the years since the financial crisis, we’ve seen plenty of attempts to help these borrowers make their first step onto the ladder. But the truth is these measures only play to the short-term lending model – the way we’ve always done things, the status quo. Help to Buy is one such initiative, but as house prices continue to soar, alongside rising living costs, more first-time buyers (FTBs) are still being edged out of the market. Rising rent prices are also making it harder for people to save for deposits.

Real innovation to help these borrowers has been sorely lacking. If we are to get a hold of this crisis, we need to rid ourselves of legacy mindsets and take a radically new approach to mortgages. Flexible fixed-for-life products could provide a welcome solution that will help to break down affordability barriers.

Right product, right time

The existing choice available, largely in the form of short-term products, is restricting many buyers from stepping onto or even up the ladder. Stress testing at 3% above the SVR has made it difficult for many borrowers to get a mortgage. Even if the BoE may soon be easing these barriers, buyers already don’t need these stress tests when choosing a long-term fixed for life mortgage.

This is because they are not subject to the same impact rate changes would have on short-term products. It means that FTBs can borrow what they need to afford that first property, while existing homeowners can also borrow more to move up the ladder.

There is much to suggest that long-term fixes are a product whose time has now come. In a world where prices are increasing and borrowers are sensitive to rising bills, and with a potential upwards change to the base rate on the horizon, the certainty of a long term fixed price offers much needed peace of mind.

But real innovation also means making these fixed-for-life mortgages a flexible solution for customers. There may already be a number of long-term products available on the market, but these options have been developed in a way that still supports the short-term model.

Products often come with hefty early repayment charges and consumers, understandably, have concerns about locking into a rate for 10 years or more.

If we in the mortgage market were to ask a consumer what their ideal mortgage would look like, the answer would possibly be a simple, low-fee framework that offers long-term security, but also flexibility to switch if they want to. It’s this model that has been so successful in other countries, such as Denmark and Germany. There, such long-term fixed rate mortgages are the norm.

The availability of competitive, long-term fixed rate mortgages is largely absent in the UK and at Perenna we think this needs to change.

Short-term fixes might be the way we’ve always worked in this mortgage market, but with homeownership rates falling we need a new approach to lending – tweaks are not enough. That’s why we will be bringing flexible, fixed-for-life mortgages to the UK from next year and we hope to drive innovation as well as positive change for current and future generations of borrowers.

Colin Bell, co-founder and chief operating officer, Perenna