The launch by Skipton Building Society of a deposit-free mortgage, specifically aimed at renters has taken the headlines by storm.
Although there are some 100 per cent mortgages in the market, they are few and the difference is they all require a guarantor.
So on the face of it, Skipton’s offering looks like a game changer.
But will it live up to expectations and will it herald a return to the 100 per cent mortgage?
Skipton’s new mortgage offering is fixed for five years at 5.49 per cent over a maximum term of 35 years.
A key part of the lending criteria is that the borrower must prove they have a minimum of a 12-month good track record rental history.
Additionally, the monthly mortgage payment for each applicant will not be more than the average of the 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.
Other key features of Skipton’s deposit-free mortgage:
- Tenants can borrow over 95 per cent up to 100 per cent loan-to-value.
- Available to tenants aged 21 and above.
- Available for first-time buyer purchases only.
- Subject to affordability and credit score, plus evidence of a minimum of a 12-month good track record rental history.
- The income multiples factored into the calculation is income times 4.49, and you can be a sole applicant or joint applicants of up to 4 people.
So, if someone wants to buy a property where the monthly rent would be £1,290 – the average rental price in the UK – the maximum mortgage they could get from Skipton would be around £240,509.54, using the calculation provided by Skipton.
Mortgage technicalities
While this will open the door for more borrowers to get on the ladder, it potentially rules out vast swathes people.
Benjamin Blyth, director at Houz Mortgages, says: "[£1,290] might be realistic when renting a three to four-bedroom house, but at £241,000 [the average house price for a first-time buyer in January 2023] this would not buy a three or four-bedroom house in most parts of the UK.
“[It means] that buyers will likely need to downsize, move to a cheaper area of the country, or already be renting beyond their needs to be eligible for the scheme,” Blyth adds.
“The median rent paid in the UK, according to ONS, is £800 per month. This amount would only be enough to buy a house for £149,000 on Skipton's new scheme – almost £100,000 short of the average house price.”
Jamie Lennox, director at Dimora Mortgages, says: “Realistically, unless mortgage rates come down dramatically this isn’t going to open the door to many first-time buyers in the south of England.”
Charlotte Harrison, chief executive of home financing at Skipton, acknowledges that the product will not be able to help everyone and is only part of the solution for this group of people, but says as a lender, Skipton is “taking a stand” to offer innovation in this space.
