New first-time buyer scheme where you don’t need a deposit launched – do you qualify for a 100% mortgage?
A BIG lender has launched a new first-time buyer scheme and you don't need cash for a deposit.
Skipton Building Society has launched the UK's first 100% loan-to-value mortgage that's exclusively available to renters.
The Track Record Mortgage is available to tenants aged 21 and above and for first-time buyer purchases only.
The five-year fixed rate, which is available to borrowers needing a 100% loan, is fixed at 5.49%.
The deal doesn't require a signed guarantor, which makes it unique as the small number of deposit-free mortgage deals from other lenders all need some help from the Bank of Mum and Dad.
It comes after Skipton's own research exposed how 80% of tenants feel "trapped" in the rental cycle, paying rents that are higher than a mortgage.
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This then prevents them from saving a deposit to buy their own home.
At the same time, house prices for first-time buyers have risen by an average of 18% in the last two years, an increase of £39,680.
Skipton's Track Record mortgage is designed to help break this rental cycle.
What you can borrow
The lender will ensure that the monthly mortgage payment for each applicant is not more than the average of their last six months' rental costs.
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For example, a tenant paying an average of £800 per month over the last six months will have a maximum monthly mortgage payment of £800.
Based on the mortgage rate of 5.49% that means the maximum 100% loan taken over a 35-year term would be £149,153.
Renters will also have to pass all the usual affordability tests and credit scoring.
Even if their income would allow them to borrow more than this, the maximum they can borrow will be capped by the rental calculation.
David Hollingworth at L&C Mortgages said: "Renters will have been frustrated by the need to build a big deposit to meet high purchase prices, whilst covering steep rental payments at the same time.
"This deal recognises the fact that hard-pressed first-time buyers who 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."
Customers wishing to see how much they can borrow can use Skipton's Track Record Calculator on its website.
Charlotte Harrison, boss 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."
She warned that people trapped in renting is one of the UK's biggest housing challenges, and is having a "massive impact on the fabric of 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 to get onto the property ladder," she added.
House price growth slows
The launch of the product comes on the same day that Halifax announced that UK house prices dipped in April.
Average house prices dropped by 0.3% in April and the typical UK property now costs £286,896 - compared to £287,891 in March.
The annual rate of house price growth has also slowed to 0.1% - down from 1.6% in March.
We've explained how 100% mortgages work in practice below.
How do 100% mortgages work?
A 100% mortgage helps those struggling to raise enough cash for a deposit to get on the property ladder.
These allow buyers to purchase a home without paying a deposit - but they can come with extra fees.
This differs from most standard mortgage deals which require the borrower to put down at least a 5% deposit.
Since the 2008 Financial Crash, lenders have become a lot stricter when it comes to offering 100% mortgages.
Before Skitpon launched its new Track Record Mortgage borrowers could only choose from a handful of niche 100% loan-to-value guarantor or family deposit mortgages.
With a guarantor mortgage, a parent or close relative agrees to guarantee your mortgage repayments if you can't repay what you owe.
A family deposit mortgage works in a different way and asks a relative of the borrower to deposit a set amount of cash in a designated savings account to cover some of the home's value.
What are the pitfalls of 100% mortgages?
While 100% mortgages tend to look great for first-time buyers looking to get on the property ladder - there are still a number of pitfalls.
These mortgages are usually more expensive because they require no upfront deposit.
The best mortgage rates tend to be most available to those with high deposits.
Those who take out a 100% mortgage also run the risk of slipping into "negative equity".
This is where your property becomes worth less than the amount you've borrowed against it - but longer mortgage terms can help reduce the risk of this.
Tips for getting the best mortgage deal
If you're looking for a traditional type of mortgage instead, getting the best rates depends entirely on what's available at any given time.
But there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE rise rises.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare for you, but you may have to pay for this service.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You'll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
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You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.