Could a 100% mortgage be right for you?

Could a 100% mortgage be right for you?
Skipton Building Society has launched a 100% mortgage which allows first-time buyers to purchase a home without a deposit, using their rental history to boost affordability.

It is the first time a lender has launched a 100% mortgage which doesn’t need the backing of a guarantor since the 2008 financial crisis. Here, we explain how the Skipton mortgage works, as well as some of the other options that might be available to homebuyers without a deposit.

Who’s eligible for Skipton’s 100% mortgage?

Skipton’s ‘Track Record’ mortgage, as its name suggests, is aimed at renters who have a track record of paying rent and other household expenses. Applicants must be able to provide evidence that they’ve paid at least 12 months’ rent as well as 12 months’ household bills in a row over the last 18 months. They also mustn’t have missed any debt repayments or credit commitments over the past six months.

Only first-time buyers aged 21 or over can apply for the mortgage, which is a five-year fixed rate, with no arrangement fees. The maximum you can borrow is £600,000 and the mortgage is available on existing properties or new build houses. The biggest deposit buyers can put down is 5%, although the mortgage has been designed for those with no deposit.

Given the strict eligibility criteria for this mortgage, it won’t be right for everyone. However, for those who’ve rented for a while but have been unable to save a deposit and don’t have family assistance, it might be an option worth considering.

What other options are available to buyers with a small or no deposit?

There are various other 100% mortgage deals that have been available for a while, but they require a guarantor to back them. For example, the Barclays Family Springboard mortgage allows homebuyers to take out a mortgage without putting down a deposit, provided a family member or friend agrees to keep 10% of the property purchase price in a savings account for three years.

The money will be returned to them at this point with interest, as long as all mortgage payments have been made on time. The Springboard mortgage is not exclusively aimed at first-time buyers, so it can be used by those trying to move up the property ladder too.

Similarly, The Lloyds Lend a Hand mortgage requires a family member to put down 10% of the purchase price of the property into a three-year fixed term savings account. This acts as security for the mortgage.

When the three-year term finishes, the family member will get their savings back with interest, provided the property owner has made all their mortgage repayments over this period.

For families who don’t have the cash savings to help, other lenders, such as the Mansfield Building Society, offer schemes whereby they take a charge on the parental property, which acts as the deposit.

Buyers who have managed to build a small deposit will find wider availability of 95% mortgages, some of which are backed by the Government’s Mortgage Guarantee scheme, which provides lenders with a financial guarantee on any loan where only a 5% deposit is put down. There are no minimum or maximum income requirements to qualify for the scheme, which can be used by first-time buyers or home movers, providing the property value is no more than £600,000.

The Mortgage Guarantee scheme was originally due to finish last year, but has been extended until the end of 2023. It’s worth noting that while several lenders have chosen to take part in the scheme, many have standalone deals without the Government restrictions.

What are the downsides of no deposit mortgages?

The biggest downside of a 100% mortgage is that if property prices fall, you may find yourself in negative equity, whereby you owe more on your mortgage that the property is worth.

Whilst negative equity might not be a big problem for anyone who plans to stay in their property long term until property prices recover, it can cause major issues if you need to move or remortgage.

If you can save a 5% or 10% deposit, this will give you some protection against ending up in negative equity, and it should also enable you to access to a wider range of mortgage deals. Seek professional advice if you want help choosing the best mortgage deal to suit your needs.

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