Skipton Building Society, a UK mortgage lender, is set to introduce a mortgage product targeting potential first-time buyers who are unable to save for a deposit.
This initiative marks the first 100% loan offering by a mortgage lender since the 2008 financial crisis. In the aftermath of the crisis, mortgages without a deposit requirement became rare. Skipton aims to assist individuals “trapped in rental cycles” and lacking access to financial support from their families, hindering their ability to save for a home deposit.
While specific details of the mortgage plan are yet to be revealed, a report in the Times suggests that the new product will allow borrowers to secure a loan up to 100% of the property value. To qualify, applicants will need to demonstrate a rent payment history comparable to mortgage repayments over a period of up to two years. The mortgage agreement will likely have a fixed term of more than two years to mitigate the risk of falling into negative equity.
This type of mortgage differs from other existing niche products that enable borrowers to borrow 100% of the purchase price but require financial assistance from a family member, such as providing collateral for the home loan. Such options often limit eligibility to individuals with affluent families. The launch of Skipton’s mortgage offering is expected to occur in the coming days or weeks.
This development may reignite discussions about responsible lending, particularly amid uncertainties surrounding house prices. It coincides with speculation that the government intends to revive the help-to-buy scheme, which ceased accepting new applications in late 2022. Increasing house prices and soaring private rents have made saving for a sufficient deposit more challenging for many potential buyers. According to data from Halifax, the average first-time homebuyer deposit in 2022 was £62,470—a year-on-year increase of eight percent.
The last UK lender to provide standard 100% mortgages without a deposit requirement withdrew from the market 15 years ago. No-deposit mortgages have faced criticism due to the heightened vulnerability of borrowers if house prices decline since they lack equity to cushion the impact. Even a slight decrease in house prices could leave some borrowers owing more on their mortgage than the value of their home.
One notable example of a 100%-plus mortgage was Northern Rock’s Together home loan, which allowed borrowers to borrow up to 125% of a property’s value. It was withdrawn from the market in 2008 following public backlash against lenient lending practices and easy credit.
Recent figures indicate that new first-time buyers are paying an average of £191 more per month on their mortgages compared to a year ago, primarily due to higher loan rates and record property prices.
In April, Stuart Haire, the Skipton group chief executive, announced the development of a mortgage product aimed at enabling individuals trapped in rental cycles to access homeownership despite their inability to save enough for a deposit or receive assistance from their families. Haire highlighted the existence of individuals who have a proven rental payment history and affordability for a mortgage but lack the required deposit and access to the “bank of mum and dad” (financial support from family members).
Mortgage lenders typically conduct affordability assessments to determine the amount they can lend to an individual. David Hollingworth, an associate director at broker firm L&C Mortgages, mentioned that solid affordability is crucial when no deposit is available. Using rental history to bolster affordability could significantly assist first-time buyers.
Skipton Building Society has not yet disclosed the specific details of the mortgage product.
To read the rest of The Guardian’s article, click here.