100 LTV No Deposit Mortgage? We've Got You Covered
This month's biggest mortgage news was the introduction of Skipton Building Society's 100% mortgage—Track Record.
It's the first of its type since 2008. Yes—there are other 100 LTV mortgages on the market, but all of those require a guarantor to deliver the security lenders need before committing to a mortgage loan. Worse still, they're hardly ever approved due to lenders' incredibly strict and stringent requirements, making them one of the most challenging products to land in the industry. That's why Skipton's new offer is such a breath of fresh air.
LTV mortgages—loan to value—describes the ratio between the mortgage debt and the property value. It's one of the key criteria of mortgage applications. The higher your new house deposit and lower LTV, the more likely you are to be accepted, the higher the loan amount you can achieve, and the more favourable your interest rate will be (backed by an appropriate credit rating, of course).
A lower LTV translates into lower mortgage repayments, and the likelihood of falling into negative equity is far less likely.
Could this be the alternative to family deposit mortgages that first-time buyers have been waiting for?
Finally, there's new hope for first-time buyers getting a mortgage deal without leaning on a family deposit mortgage (or other guarantor mortgages), providing an opportunity to escape the rental cycle trap where saving a suitable deposit seems practically impossible.
Why saving a mortgage deposit seems harder than ever
High property prices have continued to be a problem for many first-time buyers struggling to save enough to put down the bare minimum. Sadly, with the recent inflation and energy crisis hikes, there's even less in the pot at the end of each month to filter into a savings account.
Rental payments are comparatively high for many, too, which only adds to the frustration for those who know they're already paying more to rent their home than a monthly mortgage payment would be.
Far more households have opted to rent their home over the past 20 years, with far too many tenants feeling trapped, especially those whose monthly rental costs could cover the loan repayments most mortgage providers require.
So could Skipton Building Society becoming the first mortgage lender to offer a guarantor-free 100 LTV mortgage in over a decade hold the answer to renters' problems, finally allowing them to buy their own home?
How does Skipton Building Society's 'Track Record' mortgage work?
With a new opportunity to help first-time buyers navigate the deposit issue and finally get onto the property ladder, it sounds like it could be the answer to everyone's problems.
Unfortunately, it won't suit everybody, but there are a lot of first-time buyers ideally placed to utilise the deal. There are strict criteria borrowers must meet to qualify for the Track Record mortgage deal, and even if they do, there are a few additional points to consider.
However, for those takers who qualify, these no-deposit mortgages provide an excellent opportunity to break into home ownership.
Here are the basic eligibility requirements:
- Each applicant must be a first-time buyer aged 21 or over.
- They have less than a 5% deposit.
- The maximum loan amount is £600,000.
- They can prove that they've consecutively paid 12 months' rent during the past 18 months.
- Applicants will need a good credit score, having no missed payments on any credit commitments during the previous six months — including items such as loan payments, credit cards, subscriptions, utilities, mobile phone bills, and more.
- The property they hope to buy isn't a new build flat.
- They meet the household-to-household criteria — those paying the rent are the same people who will be making the mortgage repayments.
- They've also been paying all the household bills for at least 12 months in a row during the previous 18 months.
- They meet Skipton's affordability criteria.
The Track Record mortgage has an initial 5-year fixed interest rate of 5.49% (at the time of writing). While this is at the high end of interest rates for mortgage deals with varying LTVs and fixed-rate terms, it could be a small price to pay to finally own your own home. Investing in borrowers without a deposit could present quite a risk to the lender. Without any security to back their investment, the strict criteria and higher interest rate shouldn't be too big a surprise.
There's a world of difference between options for a 0% and 5% deposit
As a side note, considering the maximum of a 5% deposit for Track Record, if buyers can muster the smallest deposit, that 5% can make a world of difference to their available product market. A 95% mortgage is a far more standard product, opening up a wider range of offers from more providers and likely offering far better terms and a preferential interest rate.
Where's the catch with Skipton's 100 LTV mortgage?
Skipton Building Society CEO Charlotte Harrison is quite open about how their latest product isn't about to solve the mortgage problem for all renters.
She does recognise, however, that "...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".
She speaks about the challenge of tenants trapped in renting cycles, the increased cost of living squeeze, escalating rental payments, and how they need to re-think these 'massive barriers' to home ownership. The UK's biggest housing challenges will not be solved overnight, but it looks like this is one high-street lender trying to plug one of many gaps.
"We know this product will not be able to help everyone and is only part of the solution for this group of people, but as a lender, we’re taking a stand to offer innovation in this space to help turn generation rent into generation buy." -Charlotte Harrison, Interim CEO, Home Financing, Skipton Building Society
With house prices and average incomes varying throughout the country, this offer navigates the problem of how hard it can be to save for a deposit, a prevalent stumbling block for too many hopeful borrowers.
The minimum offer might not be enough to buy the house you want
Apart from being required to pay higher interest rates, your loan amount will be the lower figure calculated by your affordability assessment or your maximum monthly mortgage payment based on your current rental payment. The affordability assessment is estimated at around four to four-and-a-half times your salary (or combined salaries) while considering your monthly outgoings and standard of living.
If the lower figure is based on your current rental payments, then those with low monthly rents could find there isn't enough money available to buy the kind of home they want or need.
For example, if your monthly rent is £950, you can borrow £177,119 for a 35-year mortgage term. Whether that's enough to buy the type of home you live in will depend on local property prices. You may have to opt for a smaller house or one in an alternative area, but it'll allow you to get onto the property ladder; what you do from there is up to you.
The problem of negative equity
In their day, 0% deposit mortgages regularly faced the possible problem of falling into negative equity during the early stages of the mortgage—through price falls and market crashes. If property prices fall before sufficient equity has accrued, the outstanding loan amount could be higher than the property value.
A negative loan-to-value ratio makes it increasingly challenging to remortgage or move home. If you're unlucky enough to fall into this trap, you could be stuck with your current deal for longer than you'd like, unable to switch to a cheaper option as you'd hoped and planned.
The good news is, with Skipton's £0 deposit mortgage, borrowers can overpay mortgage payments by 10% each year. Making higher payments will add to the equity, so those new owners could be in a far better position when the chance to remortgage comes up. However, it's worth considering as exiting the deal in the first five fixed-rate years comes with an early repayment charge, which could cost thousands of pounds.
It could get you onto the property ladder—what you do from there is up to you
Getting on the property ladder is often the hardest step. Owning your home allows you to build equity over the duration of your mortgage, giving you power when the time comes to remortgage. With their 100 LTV mortgage, you might have to make a few sacrifices initially, but it could be well worth it long term.
It's always worth exploring the options in advance, whether using your own money or taking advantage of family wealth. With a strong track record, Skipton Building Society could be the mortgage lender to give you your first chance; a reputable mortgage broker can explain where this could lead over time.
Track Record will break down barriers for many renters
Despite the catches, there are plenty of positives to be taken from Skipton's bold move. If one of the high-street lenders offers such a deal, other mortgage lenders will likely follow suit. With more competition in the field, interest rates could become more competitive, lowering monthly repayments.
Many first-time buyers have had to lean on the bank of mum and dad, taking advantage of a family deposit mortgage, or even working with another family member or friend to access an alternative guarantor mortgage. Skipton's Track Record mortgage finally provides an alternative to guarantor mortgages, allowing parents' or other family members' savings to stay put and continue to earn interest.
As a leading whole-of-market mortgage broker, we can help any first-time buyer explore Skipton's 100 LTV mortgage as an appropriate option.
We offer tailored mortgage advice, finding the best mortgage deal for all our customers. It could well be that Track Record is a great option for you. However, if you can take advantage of financial help from a close family member, family offset mortgages or family deposit mortgages could save you money on your monthly mortgage payments. Alternatively—as we touched on earlier—if you can muster a minimum 5% deposit, we can open up a wealth of alternative opportunities for you.
Give us a call, and we'll talk you through all of your options and best opportunities.