Skipton Building Society has launched a new 100% mortgage, which allows borrowers to finance the full cost of their home without having to pay a deposit. The product is designed specifically for renters that have a track record of paying rent but are being held back from home ownership as they cannot afford to rent and save for a deposit. The product will look at a renter’s history of making rental payments, and if they meet affordability criteria they can access a mortgage without a deposit.
While this may seem like an attractive option for those looking to get on the property ladder, it’s important to consider the pros and cons of this type of mortgage before making a decision.
Pros
- No deposit required: The biggest advantage of a 100% mortgage is that borrowers do not need to provide a deposit. This can be particularly helpful for first-time buyers who may struggle to save up a significant amount of money for a deposit.
- Easier access to homeownership for renters: With no deposit required, a 100% mortgage can make it easier for people to own a home. For too long, deposits have held back renters from becoming homeowners. With house prices and the cost of living rising, how can people be expected to pay their rent, keep up with bills and save for a deposit.
Cons
- Limited Affordability: The monthly mortgage payment must be equal or lower than the average of the last 6 months’ rental cost – e.g. if the average rent over the last 6 months is £800, the mortgage payment must be £800 or lower. This may restrict the amount you can borrow.
- Negative equity: If the value of the property decreases over time, borrowers with a 100% mortgage could find themselves in negative equity. This means that the value of their property is less than the amount they owe on their mortgage, which could make it difficult to sell or remortgage their home in the future.
- Stricter lending criteria: Because 100% mortgages are seen as riskier, the lending criteria is stricter. Some examples of the lending criteria are as follows:
- Each applicant will have no missed payments on debts / credit commitments in the last 6 months
- The same people who are renting now (and have been for the last 12 months) must be the same people on the mortgage
- They have proof of having paid rent for at least 12 months in a row, within the last 18 months
- They have 12 months of experience paying all household bills within the last 18 months
In conclusion, while the 100% mortgage will not be for everyone, it is a welcome addition to the market. It can be an attractive option for those looking to get on the property ladder without having to provide a deposit. However, it’s important to consider the potential drawbacks, including limited affordability, negative equity, and stricter lending criteria. Borrowers should weigh the pros and cons carefully before making a decision.
I would recommend that you seek professional mortgage advice before making a decision on whether this is suitable for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All the information in this article is correct as of the publish date 9th May 2023.
