What is a zero-deposit 100% mortgage and can you get one?

The deal from Skipton Building Society will help some of the new generation of home-buyers to ‘get off the rental treadmill’, one expert said.

What is a zero-deposit 100% mortgage as Skipton Building Society launches new deal for first time buyers iStock

For what is thought to be the first time since the 2008 financial crash, Scots are being offered mortgages without the need for a deposit.

The lender behind the offer, Skipton Building Society, is hoping to help renters without savings or financial support from their families become homeowners.

The group’s chief executive of home financing Charlotte Harrison said escalating rents and the cost-of-living squeeze were making it “almost impossible” for people to get onto the property ladder.

What is the ‘track record’ mortgage?

Skipton Building Society’s new “track record” mortgage means tenants aged 21 and over may be able to take out mortgages at between 95% to 100% of the value of the property they want to buy.

It could give a helping hand to people with a strong history of paying their rent but who have been only able to save a little or nothing for a deposit to buy their first home.

How does it work?

The deal is available for first-time buyers across Britain and means you could purchase a home with monthly payments up to your current rent.

For example, a tenant paying an average of £800 per month over the past six months will have a maximum monthly mortgage payment of £800.

The UK’s biggest gap between owners and renters, in percentage terms, is in Scotland, according to Halifax.

Those renting in Scotland faced paying an average £918 per month, compared with £727 for home-owners – a saving of 21% for those on the property ladder.

To get the deal, tenants will need to demonstrate a strong track record of paying their rent, with evidence of a minimum of 12 months of rental history

This evidence could be provided through bank statements or a letter from a suitably registered letting agent, for example.

Who is eligible?

Not any renter is automatically eligible to apply, there are several terms and conditions.

You should be eligible if:

  • You have paid in full at least 12 months rent in a row within the past 18 months
  • You are looking to borrow no more than £600,000
  • You pass affordability and credit checks
  • You are not trying to purchase a new-build flat – that is one that is being sold to be lived in for the first time and has been built or converted within the last three calendar years
  • You are not using it with any other borrowing scheme

The fee-free mortgage is a five-year-fixed-rate product with a rate of 5.49% and the maximum mortgage term is 35 years.

Is it a good deal?

Experts said the new deal could help some aspiring homeowners to “get off the rental treadmill”, although some said that affordable housing remains in short supply.

Private renters campaign group Generation Rent said it believed “only a small number” of people would stand to benefit from Skipton’s mortgage.

“To pass the various affordability criteria, borrowers would need to be earning much more than the average household income, and so would be more able to save for a deposit in the first place,” acting director Dan Wilson Craw said.

An estimated 700,000 households across the UK missed rent or mortgage payments in April, according to consumer group Which?

But Rachel Springall, a finance expert at financial information website Moneyfacts, said it was great to see more support for first-time buyers who are struggling to afford a deposit for a mortgage.

“There are very few 100% LTV mortgages in the market, but even if we were to see more innovative deals surface, affordable housing is very much in short supply, and there need to be significant changes to the market to turn this around,” she said.

“It is imperative borrowers compare the overall true cost of a deal and attempt to save on the upfront cost if they have used up most of their savings on a deposit, legal fees, or moving costs.”

Andrew Montlake, managing director of mortgage broker Coreco, said: “There are many potential buyers who have proved they can afford to pay rent at the current high levels, but just do not have the means to meet ever-increasing deposit levels and feel constantly at the mercy of rising rents.

“Whilst I have had some concerns in the past, the time now seems right for a new type of 100% mortgage, one that is underwritten prudently and where affordability is carefully taken into account.”

Mr Montlake added: “This new product will not be suitable for everyone, but it will help some of the new generation of home buyers get off the rental treadmill and enjoy the security of owning their own home.”

The average house price in the UK fell by about £1,000 in April, following three months of increases, according to an index.

But in Scotland it went up by 2.2% to £201,489.

Skipton’s home financing chief executive Ms Harrison said: “We need to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home.

“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 on to the property ladder.”

She added: “It is time for a rethink on these massive barriers to home ownership.”

Ms Harrison said the mortgage “has been carefully created with the challenges generation rent is facing in mind, together with the potential risks and challenges they may encounter in the future too”.

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