First time buyers without a deposit will be able to get a 100% mortgage from a leading lender. This is the first such offer since the financial crisis of 2008.
In the past, standard home loans that did not require a deposit were fairly common. However, was removed after the financial crisis.
Skipton Building Society, however, is preparing to launch a mortgage that will target those who are “trapped in rental cycle” and do not have the “bank of mum and Dad,” and therefore cannot save enough money for a deposit.
The exact details are still unknown, but the product is available at up to 100%. Borrowers will have to show that they’ve been paying rent equivalent to mortgage payments for up to 2 years.
This mortgage is different from niche products that allow people to borrow up to 100 percent of the purchase price. It requires a family member to provide financial assistance, for example, by putting down security on a home loan.
The deal is expected to be announced in the coming days or weeks.
This move could reignite the debate on responsible lending in a period of uncertainty regarding house prices. It also coincides with speculations that the government intends to revive the Help-to-Buy scheme which had closed to new applicants at the end of last year.
The rising cost of housing and the record-high rents in private rental properties are amongst the many reasons that would-be homebuyers are struggling to save enough money for a deposit. The Halifax released data earlier this year that showed the average deposit paid by first-time buyers in 2022 would be £62470, up 8% from 2021.
It was 15 years ago that the last UK lender to offer standard 100% mortgages with no deposit required withdrawn from the market.
Mortgages with no deposit have been controversial, because those who use them are more vulnerable to a fall in house prices. They have no equity that can cushion them from a decrease in their home’s value. Some people could end up owing more than the value of their home if house prices fall even a little.
Northern Rock’s Together mortgage, which allowed borrowers to borrow up 125% of the value of their property, was pulled from sale after 2008 due to a backlash over easy credit and lax lending.
Statistics released last Friday showed that first-time home buyers are paying an average of £191 more per month on their mortgage compared to a year earlier. This is due to a combination higher interest rates for home loans and record asking price of properties.
Stuart Haire, Skipton’s chief executive , announced in April that the company was working on a mortgage product to help people who are stuck in rental cycles, and therefore unable to save a deposit for a new home, get onto the property ladder.
He said that some people have “a good history of paying rent over time, and can demonstrate affordability of a home loan. However, their only obstacle to becoming a homeowners is not having enough money to pay a deposit or access to the parents’ bank”.
Mortgage lenders use affordability tests to determine how much they can lend. David Hollingworth is an associate director of the broker L&C mortgages. He said, “If you don’t have a deposit you will need to make sure that your affordability is rock solid”.
He said: “If the rental history can be used to boost affordability, it will be a great help for a first-time purchaser.”
The Skipton has not disclosed the details of this deal.