100% Mortgage Product

Skipton Building Society, the UK’s 4th largest building society, has just introduced a new mortgage product allowing renters the opportunity to purchase a property with no deposit needed. 100% mortgages were mostly abolished during the credit crunch over a decade ago, and until recently, most lenders would have required a minimum of 5% of the property value as a deposit.

How does it work?

Skipton is the first lender to come out with a product of this kind, called a Track Record Mortgage. They are looking to help first-time buyers who currently have a strong track record of rental payments for 12 months or more and will assess this as part of their mortgage application process. Skipton will be looking at a number of things to determine whether they’ll allow a 100% mortgage. They will not lend if you have had any missed / late payments on any credit commitments in the last 6 months and will require a strong credit history to determine whether you meet the criteria. They will also only approve a mortgage on the basis that the new mortgage payments are less than the average rent payments being made in the last 6 months. For example, if the average rent paid in the last 6 months is £1,000 per month, the new mortgage payments must be £1,000 or lower.

Who is eligible?

As with any mortgage product, there are strict eligibility criteria that apply. Applicants must be first-time buyers and be 21 or over. They must also have evidence of at least 12 months of rental payments, alongside evidence of all household bills being paid. Skipton is allowing purchases of up to £600,000 on this product. There are other criteria points that must be met, alongside their standard lending criteria, which apply to every application.

What are the things to consider with this product?

There are certain things you need to consider when looking at this type of product. There is only one interest rate available for the 100% mortgage, which at the time of writing, is a fixed rate of 5.49% for a five-year period. A five-year fixed rate does come with its downsides, such as large early repayment charges payable to the lender if you wish to redeem the mortgage early. It’s also likely you won’t be able to borrow quite as much in comparison to ‘normal’ mortgage products as Skipton applies a 4.49x income multiple on these applications and also the mortgage payments are capped to the amount of rent being paid. As with any mortgage, we recommend seeking professional advice.

What do we think?

We think that this is a positive step for the market and a sign that lenders truly are trying to help those struggling to get on the property ladder. It won’t help everyone as there are some very set criteria around who they’ll lend to and what’s required, but it’s a start.

There are some big risks with borrowing up to 100% of the property value. The obvious one is the risk of being left with ‘negative equity’ if house prices fall, which continues to be speculated within the industry following the recent economic turmoil. Obtaining advice from an expert in mortgages is vital when considering any product, but especially a 100% product.

Contact us to find out more.

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