Skipton Building Society (SBS) has introduced a deposit-free mortgage deal in the hope of helping ease Generation Rent onto the property ladder.
SBS’s new mortgage product does not require a guarantor, such as parents, but is only for people over 21-years-old currently renting a property. To qualify, renters must provide evidence of being able to afford the mortgage and have a good history of making their rental payments for at least 12 months. For successful applicants, SBS will provide 100% of the property value on a five-year fixed-term mortgage. The maximum term of the loan is 35 years.
The scheme will charge homeowners a 5.49% interest rate, which is more expensive than the current average five-year fix of 5%. The recent hiking of interest rates played a significant factor in dissuading first-time buyers from the property market in September 2022, and when coupled with the fact that wages have not risen with the current inflation levels, this may mean that renters are still unable to afford SBS's track-free mortgage.
Comments on 100% mortgage from finance experts
The property finance industry has commented on the first 100% home loan launched for some 15 years, and how would-be homebuyers should consider applying for it.
Simon Bath, CEO and founder of iPlace Global, commented: “The huge increase in inflation – most notably on mortgage interest rates which we saw at the end of 2022 – has had a detrimental effect on a generation of first-time buyers in terms of their ability to get on the property ladder.
"Rapidly rising rents have made saving for a deposit increasingly difficult, at the same time that the government's Help to Buy scheme, which ran for more than ten years and helped more than a quarter-of-a-million first-time buyers, is no longer in operation. The new scheme from Skipton will come as welcomed news for many who feel that support for getting on the property ladder has been lacking in recent years.
"Whilst more support is needed for generation rent, I remain wary that interest levels are higher on this mortgage deal which will make it unaffordable for some. It's also important to remember that we saw a rise in riskier mortgages with a high loan-to-value more than a decade ago which was a root cause of the 2008 financial crash. However, as long as affordability tests are stringent, this may provide many in generation rent with a much-needed avenue to finally escape onto the property ladder.”
Co-founder and CEO of Wayhome, Nigel Purves, commented: “Although the re-introduction of 100% mortgages will no doubt be welcomed by those struggling with the high cost of homeownership, it’s important that anyone considering such a product fully understands the approval process they will be subject to. While the concept of purchasing a home without a deposit is attractive, the income multiplier associated with mortgages would still limit the purchasing power of those with lower incomes.
“What’s more, there’s a very real risk of buyers falling into negative equity should property values start to fall. Given the unsettled market conditions seen in recent months, such a change in the market is far from out of the question and could see buyers lumbered with their property and unable to re-mortgage until such a time that market values recover.
“Rather than loading people up with more debt and negative equity risk, those who are truly serious about solving the housing crisis should be looking at alternative approaches that can solve the problem in a sustainable way that is accessible to more people."
Adrian Anderson, director of property finance specialists, Anderson Harris, commented: “It seems that the humble building society is leading the way in helping would-be homeowners. For renters wanting to get onto the property ladder with good credit history and a 12-month track record of meeting rental payments on time, this is potentially welcome news. This new product removes the stumbling block of saving for a deposit and the ever-growing reliance on the Bank of Mum and Dad to facilitate homeownership. We have already taken a number of calls today from interested first time buyers.
“Whilst the launch of this product has been much-anticipated, even those with larger incomes could still struggle to purchase the homes they desire due to the restrictions in the product’s lending criteria, the wider high interest rate environment and high house prices in many areas of the UK.”
David Hannah, group chairman of property tax experts, Cornerstone Tax, commented: “The announcement of zero-deposit mortgages will come as welcomed news for those stuck in generation rent, and we could see a surge of activity in the housing market as we saw with the Stamp Duty holiday which began in 2020. The biggest issue preventing first-time buyers from stepping onto the ladder is saving up a deposit and the introduction of this mortgage offer removes that barrier totally.
“Whilst there are some concerns about this type of mortgage given what happened in the 2008 financial crash, I believe that a lot has been learned since then and affordability tests will be thorough. I also think that the risk of falling into negative equity may only be present for some who buy and sell quickly afterwards – new homeowners that hang onto this home for a number of years should see their asset increase in value.”
Rob Houghton, CEO of reallymoving, the price comparison site for home movers, said: “For a lot of people who don’t have the means to save whilst paying record high rents, and who aren’t lucky enough to receive gifts of large sums from family members, homeownership feels like a pipe dream. For years, responsible renters have been calling for their payment history to be taken into account, and if they can show that over time they’ve had no issues affording rent which is at least as high, if not higher, than their mortgage repayment would be, that should provide reassurance to lenders.
“There are undoubtedly risks and people need to be made fully aware of them. Borrowing 100% of a property’s value means you’re banking on property prices going up. While that will probably be the case for most people who are able to stay in the property for at least three to five years, which is what we always recommend, it won’t be the case for everyone. But it’s a different property market landscape to 2008 and lenders today are much more cautious. Robust vetting processes must be applied to ensure higher risk borrowers are filtered out.”