Renters who lack savings or financial support from their family can potentially make the jump on to the housing ladder with a new zero-deposit mortgage.
Skipton Building Society’s new “track record” mortgage 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.
The deal is available for first-time buyers across Britain. 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.
In return, they 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.
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.
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— Rachel Springall, Moneyfacts.co.uk
Rachel Springall, a finance expert at financial information website Moneyfacts, said: “It is 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.
“There are a few deals that will help first-time buyers get on to the property ladder with family assistance, such as the Barclays’ ‘springboard’ mortgage – however, its vital applicants and family members ensure they understand the arrangement before they commit.
“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.”
David Hollingworth, an associate director at broker L&C Mortgages, said: “Skipton’s track record mortgage is attempting to serve a part of the market that has recently been wholly reliant on help from ‘the bank of mum and dad’.
If it can help some accelerate the move from renting to home ownership it could be a significant new product— David Hollingworth, L&C
“Renters will have been frustrated by the need to build a big deposit to meet high purchase prices, whilst covering steep rental payments at the same time.”
He added: “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.”
Mr Hollingworth continued: “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.”
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.”
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— Andrew Montlake, Coreco
People may be eligible if they have paid in full at least 12 months rent in a row within the past 18 months and are looking to borrow up to £600,000.
Renters will also have to pass affordability and credit checks.
In the terms and conditions for the track record mortgage deal on its website, Skipton said that it will not lend on new-build flats.
The Society’s definition of a new-build home is one that is being sold for occupation for the first time, which has been newly built or converted within the past three calendar years.
It also said the track record mortgage cannot be used with any other borrowing scheme.
Skipton also said it will be ensuring, when looking at affordability, that buyers will not be paying more on a monthly basis than their 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 fee-free mortgage is a five-year-fixed-rate product with a rate of 5.49% and the maximum mortgage term is 35 years.
It is time for a rethink on these massive barriers to home ownership— Charlotte Harrison, Skipton Building Society
Charlotte Harrison, chief executive of home financing at Skipton, 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”.
Property website Rightmove recently calculated that first-time buyers with a 15% deposit to put down face paying nearly £200 per month more for a mortgage typically than they did a year ago.
The website said those in the 15% deposit bracket would pay an average of about £1,056 per month, compared with £865 last year, due to mortgage rates and house prices rising.
Across Britain, the average asking price for a first-time buyer-type property is sitting at a record of £224,963, according to Rightmove’s data.
The average asking rent for a first-time buyer type property is £1,120 per month, having increased 11% compared with last year, the website added.
