Want The New Deposit-Free Mortgage? Here's What You Need To Know

Experts say Skipton Building Society's 100% home loans should help some would-be homeowners to “get off the rental treadmill”.
Skipton says it wants “to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home".
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Skipton says it wants “to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home".

A mortgage lender has unveiled a new product designed to help “generation rent” get on the housing ladder against the backdrop of rising prices and the cost-of-living crisis.

Skipton Building Society has announced details of a new zero-deposit mortgage, which has in mind “trapped renters” who lack savings or family support.

The move is symbolic as lenders pulled their 100% mortgages from the market following the 2008 financial crash, viewing them as too risky.

How can I get the new mortgage?

The so-called “track record” mortgage is supposed to give a leg-up to people with a strong history of paying their rent, but who have struggled to save a deposit to buy their first home.

The deal is available for first-time buyers across Britain. Tenants aged 21 and over may be able to take out mortgages at between 95% to 100% of the value of the property they want to buy.

In return, they will need to demonstrate a strong track record of paying their rent, with evidence of a minimum of 12 months of rental history

This evidence could be provided through bank statements or a letter from a suitably registered letting agent, for example.

People may be eligible if they have paid in full at least 12 months rent in a row within the past 18 months and are looking to borrow up to £600,000.

Renters will also have to pass affordability and credit checks.

In the terms and conditions for the track record mortgage deal on its website, Skipton said that it will not lend on new-build flats.

The Society’s definition of a new-build home is one that is being sold for occupation for the first time, which has been newly built or converted within the past three calendar years.

It also said the track record mortgage cannot be used with any other borrowing scheme.

Skipton also said it will be ensuring, when looking at affordability, that buyers will not be paying more on a monthly basis than their current rent.

For example, a tenant paying an average of £800 per month over the past six months will have a maximum monthly mortgage payment of £800.

The fee-free mortgage is a five-year-fixed-rate product with a rate of 5.49% and the maximum mortgage term is 35 years.

How much are first-time buyers having to borrow?

Across Britain, the average asking price for a first-time buyer-type property is sitting at a record of £224,963, according to property website Rightmove’s data.

The average asking rent for a first-time buyer type property is £1,120 per month, having increased 11% compared with last year, the website added.

Rightmove recently calculated that first-time buyers with a 15% deposit to put down face paying nearly £200 per month more for a mortgage typically than they did a year ago.

The website said those in the 15% deposit bracket would pay an average of about £1,056 per month, compared with £865 last year, due to mortgage rates and house prices rising.

What does Skipton say?

Charlotte Harrison, chief executive of home financing at Skipton, said: “We need to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home.

“People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our society.

“With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit, it’s making it almost impossible for people get on to the property ladder.”

She added: “It is time for a rethink on these massive barriers to home ownership.”

The return of 100% mortgages is seen as a red flag for some commentators, with some fearing it will lead to spike in households defaulting on their loan. But Harrison said the mortgage “has been carefully created with the challenges generation rent is facing in mind, together with the potential risks and challenges they may encounter in the future too”.

What do experts say?

Experts said the new deal could help some aspiring homeowners to “get off the rental treadmill”, although some said that affordable housing remains in short supply.

Rachel Springall, a finance expert at financial information website Moneyfacts, said: “There are very few 100% mortgages in the market, but even if we were to see more innovative deals surface, affordable housing is very much in short supply, and there need to be significant changes to the market to turn this around.”

David Hollingworth, an associate director at broker L&C Mortgages, said the mortgage was designed to “serve a part of the market that has recently been wholly reliant on help from ‘the bank of mum and dad’”.

He said: “There will always be concerns that no deposit could risk negative equity, but this is a longer-term product for that reason, and if it can help some accelerate the move from renting to home ownership it could be a significant new product.”

Andrew Montlake, managing director of mortgage broker Coreco, said: “Whilst I have had some concerns in the past, the time now seems right for a new type of 100% mortgage, one that is underwritten prudently and where affordability is carefully taken into account.”