Skipton Building Society has announced the launch of its new mortgage product that will allow homebuyers to borrow 100% of a property value to get onto the property ladder.
The mortgage is aimed at those with a “strong track record of rental payments” who are without a house deposit, which Skipton says will “take away the dependency on the Bank of Mum and Dad or guarantors”.
The product aims to “hand a lifeline” to the 4.6m households renting privately across England, which Skipton say is more than double (+112%) the number recorded in 2000. Indeed, the building society’s research suggests eight in 10 tenants feel “trapped” in the rental cycle, paying rents that are higher than a mortgage which then prevents them saving a deposit to buy their own home.
At the same time, it’s said house prices for first time buyers have risen by an average of 18% in the last two years – an increase of £39,680.
Skipton says it is ensuring that the buyers utilising their Track Record Mortgage will not be paying more on a monthly basis than what their current rent is.
“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,” said Charlotte Harrison, CEO of Home Financing at Skipton.
Harrison added that people being trapped in the rental cycle is “having a massive impact on the fabric of our society” and, in conjunction with the cost of living crisis, is making it “almost impossible” for people to get onto the housing ladder:
“We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time so can evidence affordability of a mortgage – but there is currently no solution for them to buy a property due to lack of savings or access to family wealth.”
The product is available to first-time buyers aged 21 and above on a five-year fixed rate product at 5.49% over a maximum term of 35 years.
“In a property sector that is sorely in need of innovative product offerings for renters, Skipton Building Society’s new product is a welcome step in the right direction,” commented Danny Belton, Head of Lender Relationships at Legal & General Mortgage Club.
While Belton said it is “encouraging” to see buyers’ ability to repay rents recognised in criteria requirements, he said the industry is “acutely aware of the potential risks” which include higher chances of borrowers entering negative equity. “However, it’s important to remember that affordability checks are much more robust now than in 2007/8,” he added.
David Hannah, Group Chairman of Cornerstone Tax, was similarly optimistic – even suggesting the return of no-deposit mortgages “could see a surge of activity in the housing market” akin to that seen during the stamp duty holidays of recent years:
“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.”
Mike Ward, executive chairman, Armalytix, commented:
“The reappearance of 100% mortgages have made lenders acutely aware of the need to check repayments are affordable. However, where they will need to be extremely vigilant is the money laundering risk. Money launderers are persistent and always on the lookout for points of weakness in the property ownership lifecycle. A 100% mortgage is very attractive as no upfront funds are necessary and 100% of the property value could be financed using dirty money.
What appears to be a legitimate mortgage is extended and subsequently repaid via lump sums of the criminal money. This has a dual advantage to the money launderer, not only does it launder the money, but it also provides the criminal with a seemingly legitimate source of funds, which can in turn provide a paper trail of evidence to cover up further money laundering activities.
The good news is, mortgage lenders are actively exploring the deployment of similar source of funds checks as property lawyers. These checks would be deployed on lump sum repayments to combat these money laundering risks. Checks such as these have been successfully built on Open-Banking-enabled technology, making them fast, convenient and most importantly, effective. In future, money launderers will have to look elsewhere.”
