What is a zero-deposit 100% mortgage? Can you get one?
Thu 11 May 2023
Holly Butcher, Residential Valuer
It is the first product of its kind to be introduced since 2008, and Skipton Building Society claims that its Mortgage is intended to assist renters who are having trouble saving up for a deposit to get on the housing ladder.
If you are a first-time home buyer struggling to get on the property ladder, you know all about this frustrating catch-22. This means that it usually costs more to rent a home than to buy one. Every month, you pay much more than you would pay for your mortgage (usually), and that money goes to someone else to help them buy another long-term investment. But because you pay so much in rent, you cannot save enough money for a down payment on your home. And lenders will only give you a mortgage with that big down payment, even though you can show you can make payments (since you are already paying twice as much).
About the 100%, deposit-free Mortgage by Skipton Building Society
The 100% mortgage from Skipton Building Society is designed to assist renters in moving up the property ladder even if they do not have a deposit.
The number of households in England that rent privately has increased to 4.6 million, more than double the number recorded in the year 2000.
- All first-time buyers over the age of 21 who are currently renters are eligible for the new mortgage.
- The interest rate is available at 5.49% over a max term of 35 years.
- Can only pay monthly instalments worth the average of what you have been paying in rent for the past 12 months. Therefore, if you have been paying £600 a month, you can only pay £600 or below in mortgage repayments over a maximum of 35 years. This would mean your budget for your property purchase would be £252,000. Ofcourse, this is subject to Skipton Building Society's own affordability checks on you.
- Purchasers can borrow up to 100% of the LTV (LTV means Loan To Value. It is the ratio of what you borrow as a mortgage against how much you pay as a deposit. An LTV of 100% basically means there is no down payment. An LTV of 90% means you would put down 10% of the property's price as a down payment. )
- Eligibility is subject to affordability (your earnings and outgoings), your credit score (which CAN be improved by taking out a credit card and paying off each month - please seek further financial advice), plus evidence of a minimum of a 12-month good track record of rental history.
- Unlike other zero-percent mortgages out there, Skipton Building Society does not require a guarantor for its new 100% mortgage.
How many First Time Buyers are there Currently in the UK?
See below a graph showing the history of how many First Time Buyers there have been from 2006 to 2023. (Source: money.co.uk)
The graph below shows the average age of a First Time Buyer in the UK from 2006 to 2023. The average age of a First Time Buyer in the UK in 2023 is currently 33.6.
What will happen to house prices in the UK following the new 100% Mortgages?
In the same week as Skipton Building Society announced its zero percent mortgages, Halifax released data of the average UK house price to have dropped slightly in April 2023. We certainly expect an increase in the number of buyers out there. However, we don't anticipate the same "Gold Rush" as we saw following the "Stamp Duty Holiday" which was introduced in July 2020 by then-Chancellor and now Prime Minister, Rishi Sunak. There is still an ongoing cost of living crisis and interest rates are supposed to be going up again soon. That being said, we do anticipate more buyers for properties in and around Barnsley, Penistone and Huddersfield that are suitable for first-time buyers in houses worth between £230,000 and £350,000.