The Skipton Building Society has given renters hoping to be able to own a home of their own a new opportunity to be able to become a homeowner, even without a mortgage deposit.
The Skipton Building Society's new Track Record Mortgage is only available for renters looking to become first-time home buyers. Skipton's significant new product is designed for those renters wanting their own affordable housing and is designed to look at what the renter has been paying for rent (over a period of a minimum of 12 months rent in a row), from the applicant's rental history payments and, from this, they will give you an initial indication of the maximum amount you might be able to borrow based on your average rental payments, which is an average of your rent paid over the last 6 months to determine a borrowers ability to be able to afford mortgage payments and be able to own their first home, and without a mortgage deposit!
As an example, I pay £1100 a month for rent, which is pretty good for my area, as the average rent for a 3-bedroom house locally is between £1500 and £1600 a month, and based on that £1100 figure, the Skipton calculator suggests I might be able to attain a borrowing amount of £205,086, based on a 35-year mortgage.
Now this figure isn't set in stone. If you want to proceed, you'll need to complete a full Affordability Calculator check which will take your bills and other outgoings into account, giving you a 2nd loan estimate. Skipton will then work on the lower of the two amounts offered as your suggested loan/mortgage amount. This is to ensure that first-time buyers can afford the mortgage repayments.
If successful, you'll then need to pay a fixed interest rate for 5 years. This means that even if other interest rates go up or down during that time, your interest rate won’t change; however, the overall true cost of the deal may work out expensive. The rate is 5.49% and comes without fees, but this is on the high end of higher interest rates than those offered by a different mortgage provider, so it's a good idea to talk to a mortgage adviser or mortgage broker before applying, BUT as it's the only scheme offering a zero deposit mortgage offer, and if you can't come up with a deposit, or won't be accepted by other mortgage options, then, although more expensive over the 5 years, than with a rival, it's a way to own your own home, when otherwise you might never get the opportunity for home ownership.
There are potential risks with 100% mortgages; it's not all good news. Aside from the fact that 100% mortgages are typically more expensive, they also pose a greater risk of negative equity. This occurs when the value of your mortgage exceeds the value of your property, which could happen if property prices were to decrease significantly. With a 90% mortgage (i.e. a 10% deposit), property prices would need to decrease by more than 10% for you to be at risk of negative equity. However, with a 100% mortgage, the price drop wouldn't have to be very substantial for you to be at risk. Moreover, if you've only had your mortgage for a short period, you're more likely to fall into negative equity due to a decline in property prices. This is because, in the early years of your mortgage term, a more significant portion of your monthly repayments are allocated towards paying off the interest on your mortgage rather than the capital balance, which means your loan-to-value (LTV) ratio remains high for the set period of time of the fixed rate mortgage.
This is important as currently there is evidence that house pieces are starting to fall, so this means you could find yourself in negative equity well within those first 5 years, which is a problem should you wish to sell your property within a few years of purchasing it, meaning you can't afford to sell, and would have to stay put until house prices recover.
One of the most significant benefits of this new deal is that even if you have very little in the way of a deposit, you can still apply, as the scheme is only available for those with a deposit of LESS than 5% available, and even if you have zero deposit you could still be offered a mortgage, in fact, the scheme actively promotes that you DON'T need a deposit to apply! This is great for renters as most of us plough so much money into our rent and bills we have very little left in the way of spare cash to be put towards a house deposit, so it really gives hope to those people who had more or less given up on the hope of being able to own their own home, without some sort of external financial help to fund the deposit.
Who can apply for this mortgage?
You might be eligible for this mortgage if:
Each applicant is a first-time buyer
Each applicant is aged 21 or over
You have less than a 5% deposit
Each applicant has no missed payments on debts/credit card commitments (e.g. mobile phone bill) over the last 6 months, so you'll need to have a good credit history so it won't help those with a bad credit history.
You want to borrow up to £600,000
You meet the scheme's household-to-household criteria
*You're not looking to buy a new build flat
You have proof of having paid at least 12 months' rent in a row during the last 18 months and can prove your previous 12 months of rental history, even if paying rent in cash.
You must also have experience in paying all household bills (e.g. utility bills, council tax etc.) for at least 12 months in a row during the last 18 months.
Joint applicants who have been renting separate properties will be eligible as long as each applicant can provide evidence that they have individually covered their entire rental and household expenditure payments. In this instance, when calculating the max loan amount based on the average rental payment over the last 6 months, their combined rental payments can be used, increasing the maximum monthly mortgage payment you can make jointly.
*The scheme is not available for purchasing a new build flat but is available on new build houses. (A new build flat is one that's being sold for occupation for the first time, which has been newly built or converted within the last 3 calendar years.)
Now for our family situation, this scheme could be better. We rent from a family friend, and they have given us a great monthly rental price which helps our finances but does mean that we will only be able to borrow a smaller amount than a neighbour who pays some £500 more a month on rent. The issue is that what we may be offered to borrow for a home won't get us a home in our local area, as it's not enough. Even though we know we are likely going to have to downsize our current 3 bedroom home to a smaller one, we are unlikely to find anything suitable and would have to move away to an area with houses with a lower property value, to be able to make better use of our house budget, which is likely to be a long way away from our current home, which is a significant upheaval!
If, however, you lived in a city such as London where you might be paying £2000 - £2500 a month on rent and wanted to buy, you might be able to find a house reasonably local, or certainly on the outskirts of where you have been living, as your loan offer is likely to be much higher. If you moved to an area with much cheaper housing, you could potentially be living in a house far larger, and with more in the way of a garden and other handy facilities, than you did in London, for likely less than you've been paying on rent, so it's a great move, especially for first-time buyers who even during a cost-of-living squeeze and coping with escalating rents and only a small deposit, or none at all, being able to get a new home without the massive barriers put up by some mortgage companies in regards to a large deposit and hefty legal fees!
Our situation is a bit different to others; some you win, some you lose, but for many renters, this may very well be a way to finally be able to get on the property ladder when it seems you might never get that opportunity as you couldn't come up with a large deposit.
I suspect there will be other mortgage lenders watching to see what happens with this scheme, and if successful, you'll likely start to see more similar zero-deposit mortgages being offered in the market over the coming months.