Skipton launches 100% mortgage to help renters onto the property ladder

Skipton Building Society has launched a 100 per cent mortgage for tenants which will enable them to get onto the property ladder without a deposit.

The five-year fixed deal comes with a 5.49 per cent rate and a maximum term of 35 years.

It comes after This is Money revealed at the start of April in an exclusive interview with Skipton chief executive Stuart Haire plans to help first-time buyers who face a huge hurdle in saving for a deposit on a home. 

The mortgage is open to all first-time buyers who currently rent and pass the lender’s affordability criteria, allowing them to borrow up to 100 per cent of the value of the property. 

Charlotte Harrison, of 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 and 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 home ownership, and we’re proud to take the lead on bringing to the market, solutions for such a massive social problem.’

Harrison adds that the Track Record Mortgage product has been created with potential risks in mind, including concerns around negative equity.

When news of a deposit-free 100 mortgage first broke last month many voiced concerns it would put borrowers at risk of going into negative equity – where the value of the loan is more than the property.

First-time buyers currently face multiple factors which make it difficult to get on to the housing ladder. 

Higher mortgage rates after the soaring cost of borrowing last year, coupled with stubbornly high house prices is making it hard for would be buyers to put together a deposit and meet lenders’ affordability criteria.

There are 4.6million households renting privately across England, according to Skipton, more than double the number recorded in 2000.

Within this, four in five tenants feel ‘trapped’ in the rental cycle, paying rents that are higher than a mortgage which then prevents them 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 per cent in the last two years, an increase of £39,680. 

Over a third of renters say higher monthly payments are stopping them saving for a house deposit.

Nearly a third of renters spend at least half of their income on housing compared to just 17 per cent of mortgage holders, a survey from Ipsos has found.

David Hollingworth, of L&C Mortgages, said: ‘Talk of 100 per cent mortgages may feel like something of a back to the future moment but it’s a very different climate to the days when they were widely available in the market.

‘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.

‘There will always be concerns that no deposit could risk negative equity but this is a longer term product for that reason and if it can help some accelerate the move from renting to home ownership it could be a significant new product.’

All applicants for the Skipton mortgage will need to show a credit score, plus evidence of a minimum of a 12-months good track record rental history.

For example, based on the average rent of £1,290 a month, an applicant could borrow up to £240,509 for a 100 per cent mortgage at an interest rate of 5.49 per cent over a 35-year term.

Skipton is Britain’s fourth biggest mutual. It says it is ensuring the monthly mortgage payment for each applicant is not more than the average of their last six months rental costs that they have paid. 

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.

There are 15 other 100 per cent mortgages available according to Moneyfacts – however, these all come with an requirement of having a guarantor – usually, family or friends.