Meet Arjan, Perenna CEO and founder, a man on a mission to fix the housing market and create a nation of happy homeowners. Originally from the Netherlands, Arjan moved to London in 1993 after obtaining a master’s degree in econometrics from Tilburg University. Here, he joined the Royal Bank of Canada’s management trainee programme and started a career in financial services. A career that has included setting up unique funding programmes for various institutions in the billions of pounds and assessing & comparing mortgage markets internationally including Canada, US, Australia, and Denmark to name a few. He has held positions as Managing Director for Securitisation and Covered Bond teams at BNP Paribas, Director in the Asset Securitisation group at Barclays Capital and Vice President at Moody’s analysing mortgage risk. Most weekends, you’ll find him at Stamford Bridge watching Chelsea, a romance that started after moving to Barons Court in 1995 and following the weekend migration of football fans going to the match.
Why did you start Perenna?
We started Perenna so we can create a structural solution to structural issues in the UK, starting with the mortgage market. We believe if you can afford a home, you should be able to get one, and consumers should never need to worry about refinancing and the risks from rising interest rates. Time and time again consumers are asked to speculate on typically the biggest debt they will undertake in their lives, and we think that’s wrong.
I believe homeownership is a way to a happy, prosperous life, and I believe homeowners contribute to a better, wealthier and fairer society. But it must be achieved responsibly. Borrowers should be assessed on their affordability and not be exposed to unnecessary risks. I have spent my entire career focusing on mortgage markets. I witnessed first-hand the lead-up to the financial crisis, how it unfolded and how it affected people’s lives. Those events inspired me to think about changing the mortgage market for the better and improve conditions for borrowers.
I found a solution in Denmark. During my time at Moody’s, I worked with Danish mortgage banks and gained insight into the market’s workings. It’s a stable and resilient system with a 200-year-long history of operating. Where UK largely uses short-term deposits to fund lending like mortgages, Danish mortgage banks use covered bonds which are match funded to mortgages. The big buyers of covered bonds are pension funds and insurance companies who are seeking exposure to long-term fixed income (to match their long-term fixed liabilities). I concluded the model might work in the UK, but it still took several years to design a model that could work. The result became Perenna: A mortgage bank funded by covered bonds and aligns with the interest of consumers.
Why are covered bonds an exemplary method for funding mortgages?
Covered bonds enable banks to fix the mortgage interest rates over long terms, like 30 years. Fixing the interest rate removes risk from consumers and provides certainty over their monthly mortgage payments. Consumers should not be exposed to the uncertainty of interest rate changes (and the arbitrary rate setting by lenders via SVR). The tail risk of this uncertainty has played out in recent months. Homeowners who took short-term fixed rate mortgages will experience significant hardship when their fixed terms end. In addition, aspiring homeowners struggle to obtain the right product for them. This chaos does not happen in a stable, well-functioning mortgage market. Lenders in countries with long-term fixed-rate mortgages, like the United States or Denmark, can continue lending through economic cycles creating stability in the market and ensuring consumer protection.
The buyers of Perenna’s covered bonds will primarily be pension funds and insurance companies who need exposure to long-term fixed income, which they can get through mortgages. Take an example of a pensioner who needs £500/month to live. If we can match that person with someone who pays £500/month on their mortgage, we solve both the mortgage crisis and the pension crisis in one go. That is the potential of Perenna’s platform and why covered bonds are such an excellent funding instrument for mortgages.
Why hasn’t this been done before?
No one has had the incentive to do it. Incumbent banks are doing fine within the current system, and mortgage brokers have designed their business model around 2- and 5-year renewal cycles. Consumers still demand mortgages under the existing market offering, as that is all that is available to them.
Regulation is another reason. There is a ceiling on how much covered bond funding a typical UK high street bank can take due to their deposit-taking model. Therefore, a new type of banking model needs to emerge.
Having said that, non-banks such as Habito and Kensington have started to create novel long-term fixed rate offerings like 30-year fixed rate mortgages. Whilst they are funded slightly differently than us, it’s a great start to developing better products for consumers.
With a Perenna mortgage, we will be initially offering a 30-year fixed rate mortgage, with low early repayment charges (5 years), and will be portable & transferable. We want our product to flex around you, not the other way around.
How has your career changed from big bank to start-up founder?
Being a start-up founder is a wildly different experience. I started trying to drive change from inside the banks I worked for. But those types of organisations are like supertankers. It’s difficult to change direction. I quickly realised that I could only drive meaningful change by creating something new – a start-up from the outside.
We started Perenna as a three-person team, but forming a bank requires many different skills. Now, a couple of years in, we’re more than sixty employees. Growing this fast creates new challenges. I’m thinking a lot about building culture and aligning new hires. Perenna exists to challenge the existing market, to improve and inspire change. It’s essential that new hires share our ambition and are willing to challenge their own experience. Otherwise, we will end up copying what everyone else does.
I’m also thinking about how we form partnerships and collaborate with other companies and players in the industry. Perenna is a mission-driven company that exists to create a nation of happy homeowners. We want to work with any party who shares our vision and can help us realise it.
What does the future hold for the UK?
We’re finally coming out of the post-financial crisis period with unusually low-interest rates into a historically normal interest rate environment. It’s a hard transition, but it was bound to happen. At the same time, the UK is experiencing other challenges at home and abroad and it can be difficult to navigate amidst this uncertainty. The recent events after the mini-budget and subsequent turmoil in the markets made it evident to everyone that we need a more stable mortgage and pension system. Perenna has a big role to play in that transition. The future is bright for homeowners and the UK, but only if we recognise structural change is needed.
Correct at time of publishing.
