Mortgage deal with zero deposit is launching in the UK - what you need to know
A new mortgage product that doesn’t require a deposit or guarantor is being launched in the UK - the first of its kind since the 2008 financial crash.
Skipton Building Society says its Track Record Mortgage is designed to help renters who are struggling to stump up a deposit to get on the housing ladder.
Borrowers will need to show 12 months of on-time rent payments and a good credit history to be approved for a five-year fixed deal.
Skipton says the monthly mortgage payment for each applicant should not be more than the average of their last six months rental costs.
This may limit some people. So for example, if you pay £1,000 a month in rent, you would only be able to borrow £163,000, depending on affordability checks.
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Only first-time buyers aged 21 and over will be able to apply for this deal, known as a 100% loan-to-value mortgage.
The obvious perk of the Skipton Track Record Mortgage is it could help those who are struggling to save a deposit, and it doesn't come with a fee.
However, the interest rate of 5.49% is more expensive than the average five-year fix of 5.03%.
Generally speaking, 100% mortgages can also make homebuyers more vulnerable to going into negative equity - where the value of the loan is more than the property - if house prices fall.
The move from Skipton will be watched closely by analysts as no-deposit deals were largely blamed for causing the 2008 financial crash, following criticism of lax affordability checks.
Northern Rock mortgage deal Together allowed people to borrow up to 125% of the value of a property before being pulled.
Other mortgage deals with no deposits are available on the market, but they require the borrower to be backed by a guarantor.
This is where a family member or friend who owns their own home is named on your mortgage, and they are expected to cover you if you miss a mortgage payment.
Charlotte Harrison, CEO 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.
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“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 onto the property ladder.”
She continued: “This is why we’re introducing our Track Record Mortgage.
“It 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.
“In building our mortgage product with these challenges at the centre we’re ensuring considerations around negative equity have been fully taken into account.”
David Hollingworth at L&C Mortgages said: “Talk of 100% mortgages may feel like something of a back to the future moment but it’s a very different climate to the days when they were widely available in the market.
“This deal recognises the fact that hard-pressed first-time buyers that have met their rent and household bills over a sustained period of time should demonstrate their ability to meet a mortgage payment lower than their rent, irrespective of the existence of a deposit.
“It won’t solve all the difficulties for all first-time buyers and there will be affordability limitations on the borrowing amount which may still not meet the required purchase price.
“However, it offers a measured approach that gives credit for the fact that many tenants will have built up a strong track record of managing their housing costs responsibly.
“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.”
Read more about other ways to get help getting on the property ladder including all the first-time buyer schemes.
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