Building society Skipton have sensationally announced that they are launching a new 100% mortgage product, that means that potential borrowers can get a mortgage for 100% of the value of a property, without having to contribute any deposit themselves! This is a very interesting move from Skipton, as the country and mortgage market in general finds itself in a very difficult and challenging period. So what does this new product actually mean? What could it mean for the future? And what do mortgage brokers think?
20 – 30 years ago, a 100% mortgage was a much more common way of borrowing. My parents did it for their first home and I’m sure my grandparents did too. It was fairly commonplace and many first time buyers took advantage of the ability to buy a house, without having to save a deposit. Even though interest rates at the time were astronomical. However, since then 100% property loan mortgages became pretty much extinct, for the longest period of time. Lenders become more cautious with lending after recessions and various bank collapses and they decided that the best way to determine if someone could afford a mortgage, and the best way that they could ensure that their money investment didn’t backfire, would be to insist that borrowers put down 5,10,15, 20% deposit or more.
For a great many years, 5% deposit mortgages were the absolute lowest level of deposit that you could achieve when getting a new mortgage. Schemes like Help to Buy equity loan and mortgage guarantee encouraged this too and 95% loans were fairly common for property purchasers. But, when the latest UK economic troubles reared it’s ugly head, most lenders pulled their high loan to value products out of fear and insisted that borrowers put down more and more deposit themselves. Interestingly, despite mortgages becoming more difficult to secure, interest rates going up and mortgage affordability thresholds tightening, we have seen a lot of positive emerging from the challenging market. Most noticeably the introduction or 100% mortgages from Skipton building society.
What Are Skipton Proposing?
In a message to all mortgage brokers, Skipton announced that they would be introducing a mortgage product where you could borrow 100% of the value of the property, without any deposit. The new product is heavily geared towards helping renters get on to the property market and is specifically offered only to first-time buyers. Similar to the last incarnation of Help to Buy. Here is a breakdown of the rules and guidelines that Skipton have specified:
- Each applicant must be a First Time Buyer
- Each applicant must be aged 21 or over
- The same people who are renting now (and have been for the last 12 months) must be the same people on the mortgage
- Must have proof of having paid rent for at least 12 months’ in a row, within the last 18 months
- Must also have 12 months experience paying all household bills within the last 18 months
- Each applicant will have no missed payments on debts / credit commitments in the last 6 months
- The monthly mortgage payment must be equal to or lower than the average of the last 6 months rental cost
- The deposit must be less than 5%
- Maximum loan size £600,000
- Not available on New Build flats
- The product offered is currently a 5-year fixed loan at 5.49% interest with no fee.
Let’s take a quick look at what this could look like for a first time buyer purchasing 100% of a property valued at £180,000. Over 35 years at 5.49% interest, this would be £965 a month. As long as the full £180,000 is affordable based on lender affordability calculations and as long as £965 a month is less than or equal to the average of the last 6 months rental costs for the borrowers, this should be affordable.
What Have Skipton Said About 100% Mortgages?
Skipton’s email to brokers says:
‘For too long, deposits have held back renters from becoming homeowners. With house prices and the cost of living rising, how can people be expected to pay their rent, keep up with bills and save 5 figure sums for deposits? We think that needs to change. Which is why we’re putting our money where our mouth is with our brand-new Track Record mortgage – the first of its kind – where we look at a renter’s history of making rental payments, and if they meet affordability criteria they can access a mortgage without a deposit.’
CEO of Home Financing at Skipton Building Society Charlotte Harrison, has commented:
“With only very limited options to borrow with less than a 5% deposit or no deposit at all, or without help from friends and family, our Track Record mortgage could be the solution many First Time Buyers have been searching for.”
What Do Mortgage Brokers Think About 100% Mortgage Loans
This is a contentious topic and something that can be looked at from various viewpoints. The first being that first-time buyers are being thrown a lifeline and given an opportunity to get on the property ladder earlier than they anticipated. A viewpoint that Skipton clearly encourage. Any help given to first time buyers in a market that clearly isn’t favourable to towards them is positive in most cases. However, there is also the more cautious viewpoint that a lot of people worry that these products could cause. That being the risk of negative equity.
What is negative equity? Negative equity is when you owe more on the mortgage than the property is actually worth. Although unlikely in most cases, there is always the risk that the property being mortgaged could go down in value. If and when the borrower decides to sell the home, they could sell for undervalue and leave the borrower owing more money to the bank than they hoped. For example, they could get a 100% mortgage on a £200,000 house meaning they owe £200,000 to the bank or building society. In 2 years they could decide that they want to move on and sell their home, however the market could be in a slump and their property could only be worth £185,000 now. So the borrower has not made any profit on the property at all and will owe a large mortgage to the bank still.
Speak To a Mortgage Advisor About Low Deposit Mortgages
If you are struggling to save the 15, 20, 30% deposit that a lot of lenders require then a low deposit/high LTV mortgage might be an option for you. There are plenty of lenders still offering 10% and 5% deposit mortgages as well as Skipton’s new 100% loan, so give our team of helpful mortgage advisors a call today to see how we can help.