100% mortgages are back on the agenda after Skipton Building Society revealed it was extending its own deposit-free deal to more people.
The mortgage lender announced yesterday it would be offering its Track Record Mortgage, which enables tenants who have made all their rental payments to take out a deposit-free home loan, to people who have previously been homeowners.
The idea is those people who have owned homes then gone back to being tenants can break free from the rental cycle and return to the property ladder without needing a deposit.
The Track Record Mortgage was launched in May and is a loan for 100% of a property’s value. Usually, buyers require at least a 5% deposit to take out a mortgage, so Skipton’s deal has attracted a lot of interest.
In the latest development the mortgage will now be available people who have been homeowners prior to the last three years, who can evidence affordability for a mortgage and have a strong track record of rental payment history.
The deal is a five-year fixed rate product with a rate of 6.19% over a maximum term of 35 years with no fees.
However, applicants will be subject to affordability and credit score tests as well as having evidence of a minimum of a 12-months good track record rental history.
Charlotte Harrison, CEO of home financing at Skipton, said: “Sadly, there are a number of reasons why people fall off the property ladder, from divorce, to relocating to a new area, and even critical illness.
“However, for many the climb back onto the property ladder can be a difficult one, leaving many trapped renting, even after previously owning their own home.
“Significant rises in house prices over recent years, on top of the associated costs that come with buying a home, means even after retaining equity from a previous property sale securing a deposit while renting is still a blocker for those trying to get back onto the ladder.”
How much will the 100% mortgage cost?
Skipton has had plenty of interest in its 100% mortgage since its launch in May. It has already received over £40 million in mortgage applications.
However, borrowers considering the option should seek advice before signing up as the lack of deposit means repayments are likely to be higher than they would with a standard first-time buyer mortgage.
What’s more, when the Track Record Mortgage was launched earlier this year the interest rate was 5.49%. However, Skipton – like many lenders – has increased some rates over the summer meaning the deal now has a rate of 6.19%.
Analysis by Octane Capital compared monthly costs of Skipton’s 100% offering compared to a standard mortgage for a first-time buyer.
It said the first-time buyer opting for a 100% mortgage today was still facing a full monthly repayment of £1,572 which is £340 (28%) per month more than those opting for a traditional mortgage having placed a 15% deposit.
For those renters, however, who are struggling to find a deposit, Skipton’s deal still offers a lifeline.
What’s more, Skipton said it had ensured the monthly mortgage payment for each applicant was not more than the average of their last six months rental costs that they have paid.
Other 100% mortgage options for borrowers
Other options for borrowers who don’t have a deposit include guarantor mortgages, where a family member or friend can act as a guarantor.
Barclays’ Springboard and Lloyds’ Lend a Hand product are examples of similar products where family members put money equivalent to a deposit into a linked savings account to act as security for a 100% loan.
Harrison explained the Track Record mortgage helped those with a strong history of making rental payments over a period of time but who could not buy a property due to lack of savings or access to family wealth.
You can find out more about guarantor mortgages and other first-time buyer and affordable mortgage options here.
