A leading lender plans to launch a 100% mortgage aimed at would-be first-time buyers who cannot save for a deposit, the first since the 2008 financial crisis.
Standard home loans where the borrower does not have to put down a deposit used to be fairly commonplace but the last was axed in the wake of the financial crisis.
However, Skipton Building Society is getting ready to launch a mortgage targeting those “trapped in rental cycles” and who do not have access to “the bank of mum and dad,” and so are therefore unable to save up enough for a home deposit.
Precise details of how the deal will work have yet to emerge, but according to a report in the Times, the new product will be available up to 100%, and borrowers will need to demonstrate a history of paying rent comparable to mortgage repayments for up to two years, with the deal fixed for more than two years to guard against the risk of falling into negative equity.
Such a mortgage would differ from other niche products available that let people borrow up to 100% of the purchase price, but involve a family member providing financial help of some sort, such as putting up security on the home loan – meaning they are often only be an option available to those with well-off families.
It is understood the deal will be launched in the next few days or weeks.
The move could reopen debate about responsible lending at a time of uncertainty about house prices, and coincides with speculation that the government plans to resurrect the help-to-buy scheme, which closed to new applicants late last year.
Higher house prices and private rents soaring to record highs are just some of the reasons why many would-be buyers are finding saving up a sufficient deposit a bigger challenge than ever. Data issued by the Halifax earlier this year found that the average amount put down as a deposit by those buying their first home in 2022 was £62,470 – up 8% on 2021.
The last UK lender offering standard 100% mortgages, where no deposit was required, withdrew from the market 15 years ago.
No-deposit mortgages have proved controversial because homebuyers who take them out are particularly vulnerable to house price falls, as they have no equity to cushion them if there is a drop in the value of their home. Even a small fall in house prices might leave some owing more on their mortgage than their home is worth.
The most notorious 100%-plus mortgage was Northern Rock’s Together home loan, which allowed people to borrow up to 125% of a property’s value and was withdrawn from sale in 2008 after a backlash against easy credit and lax lending.
Last Friday, figures were issued indicating that new first-time buyers are typically paying £191 a month more on their mortgage than a year ago because of a combination of higher home loan rates and record asking prices for properties.
In April, Stuart Haire, the Skipton group chief executive, said it was developing a mortgage product “to enable people trapped in rental cycles – where they are prevented from being able to save for a house deposit – to access the property ladder and make a home”.
He added that there were people “who have a decent history of making rental payments over a period of time and can evidence affordability of a mortgage, yet their only barrier to becoming a homeowner is not being able to save enough for a deposit and through lack of access to the bank of mum and dad”.
Mortgage lenders carry out affordability tests when working out how much to lend someone. David Hollingworth, an associate director at the broker firm L&C Mortgages, told the Guardian that “if you’re not going to have a deposit, you are going to need that affordability to be rock solid”.
He added: “If you can use the rental history to help boost that affordability, that will be a big help to a first-time buyer.”
The Skipton said it had not announced the details of the deal.