The ‘Track Record Mortgage’ is available for tenants who can provide evidence they have the affordability for a mortgage and who can prove they have a reliable history of making rental payments.
Unlike other 100% mortgages on the market, Skipton’s new deal does not require any guarantor or involvement from the Bank of Mum and Dad. For this reason, the building society is expecting the five-year fixed deal, which has a rate of 5.49%, to sell out quickly.
Charlotte Harrison, CEO of Home Financing at Skipton, said: “People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our 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 get onto the property ladder.
“We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time so can evidence affordability of a mortgage – but there is currently no solution for them to buy a property due to lack of savings or access to family wealth.
“It is time for a re-think on these massive barriers to homeownership, and we’re proud to take the lead on bringing to the market, solutions for such a massive social problem.”
According to Harrison, the Track Record Mortgage 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. As such, considerations around negative equity had been factored in.
Mortgage payments will be less than rent
Skipton’s 100% mortgage comes following research by the building society which showed eight in 10 tenants felt trapped in a cycle of paying rent and therefore being unable to afford to put money by for a deposit.
The same would-be buyers were also inhibited by the cost-of-living crisis, rising rents and house prices rises of 18% – or £39,680 – for first-time buyers.
As such, Skipton said it would ensure buyers using its new product would not pay more on a monthly basis for the mortgage than they would on their rent. Skipton will therefore take into account the average amount the customer paid in rent over the last six months.
A tenant paying an average of £800 per month over the last six months would have a maximum monthly mortgage payment of £800.
What’s the verdict on Skipton’s new 100% mortgage?
There has been widespread praise for Skipton for making an innovative product which recognises barriers faced by first-time buyers.
Since the financial crisis in 2008, the idea of a 100% mortgage – without some kind of underlying financial guarantee from family – had been almost unheard of.
As such many may feel nervous at the idea of mortgage which – without the foundation of a deposit – poses greater risk to the lender and applicant.
But Kylie-Ann Gatecliffe, director at mortgage broker KAG Financial, offered reassurance. “This is exactly the news first-time buyers needed,” she said.
“While many people will have flashbacks to the Northern Rock days, we all know that back then mortgages were handed out like sweets. Today, underwriting is much more in-depth with affordability checks also far more robust.”
She added: “Whilst the fear of negative equity will need to be discussed, given that this is a five-year product it will encourage people to not look at this as a short-term option, which will ensure the house value has a reasonable amount of time to grow to build equity.”
Rita Kohli, managing director at The Mortgage Stop also thought this was welcome news for first-time buyers but she said explained brokers will need to advise their clients carefully on this product.
“Skipton is one of the few lenders who look to actually help people with some great criteria already in place,” she said.
“However, launching this in a market where house prices could fall further is a concern and means that, as advisers, we will need to make sure clients understand the risk of negative equity very clearly.
“But for the right property in the right place, this is just what is needed for some borrowers. For a client early in their career with the potential for progression and able to overpay as they get pay rises, this could be great.”
Affordability limitations
David Hollingworth at L&C Mortgages said Skipton’s Track Record mortgage was attempting to serve a part of the market that had recently been wholly reliant on help from the Bank of Mum and Dad.
He added: “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.”
A good idea? Unfortunately only for first time buyers. This idea from Skipton precludes Renters that have previously owned their own homes as they are not classed as first time buyers apparently. So anyone who is not a first time buyer, having owned previously and found themselves renting for a few years cannot embrace this scheme. The people are still in the same often difficult position of trying to pay extortionate rental prices whilst saving for a deposit on over inflated house prices. There is nothing out there to assist them, even if they can comfortably afford to pay a repayment mortgage monthly cost that may often be lower than their current monthly rent. Someone needs to come up with a scheme for prospective buyers that can prove a good credit history, surely not limit it to first time buyers who may be more.of a risk than those mentioned above?