After disappearing from the market following the 2008 financial crash, 100% mortgages are now back. Skipton Building Society are the first lender since 2008 to offer a no-deposit product with their Track Record Mortgage. In this article we take a look at what they are, who they are for, and the pros and cons of taking on a 100% mortgage.
What is a 100% mortgage?
If you’re a first-time buyer, you’re likely to need a deposit of around 10% of the property’s value. A bank or building society would then loan you the rest. Until the 2008 financial crash, it was relatively common for buyers to borrow 100% of the property value, making it easier for them to get on the housing ladder without having to save for years. However, after the crash, banks tightened their lending criteria and began asking for a deposit as standard.
The minimum deposit amount that lenders accept currently ranges between 5% and 10%. With the average asking price for a home for a first-time buyer hitting a record high of £225,000 in April, buyers need to save around £22,500 to put down a 10% deposit and apply for a mortgage.
Saving for a deposit has become more challenging due to soaring energy bills and record breaking (for all the wrong reasons) inflation. Additionally, average rents have jumped 11% in the year to January, meaning renters are spending more on rent that could have been going towards saving for a future home.
However, Skipton’s recently launched Track Record Mortgage is a no-deposit product that allows you to borrow 100% of the property value. Offering first time buyers a chance to get on to the property ladder without having to save up for a large deposit.
In the words of Skipton’s CEO, Stuart Haire. “We’re developing a mortgage product to enable people trapped in rental cycles to access the property ladder and make a home. This includes people who have a decent history of making rental payments and can evidence affordability of a mortgage. Their only barrier to becoming a homeowner is not being able to save enough for a deposit.”
How does a 100% mortgage work?
To start with, applicants for Skipton’s Track Record mortgage can borrow from 95% to 100% of a property’s value, so you can choose to pay a deposit if you wish (and lower your monthly repayments).
The Track Record mortgage will only be available to first-time buyers aged 21 or over. It will take the form of a five-year fixed-rate mortgage charging annual interest of 5.49%, with no fees to pay. According to Moneyfacts, the average five-year fixed mortgage is currently around 5%.
When applying, applicants will face stringent affordability checks and must also provide evidence of at least one year’s worth of timely rental payments.
How much can I borrow with a 100% mortgage?
To ensure affordability, the maximum monthly repayment is capped at the applicant’s average monthly rental costs over the last six months, which determines the overall amount you can borrow. If you pay £900 a month in rent on average, that will be your maximum monthly mortgage repayment.
Below is a table that shows the maximum you could potentially borrow based on average monthly rent. As stated on Skipton’s Track Record mortgage product page, you also need to have enough household income to pass affordability checks. You can use the Skipton’s own Track Record calculator for up-to-date results!
| Average Rent | Maximum Amount you can Potentially Borrow (35 Year Term) |
|---|---|
|
£400 |
£74,577 |
|
£700 |
£130,509 |
|
£850 |
£158,475 |
|
£1000 |
£186,442 |
|
£1,250 |
£233,052 |
|
£1,500 |
£279,662 |
|
£2,000 |
£372,883 |
Are there any alternatives to a 100% mortgage?
As well as the new Track Record from Skipton, there are some low to no deposit mortgage options for buyers. However, most require financial backing from a friend or relative which acts as a guarantee for the lending banks.
Barclays offers a 100% family springboard mortgage that requires the applicant’s family member to put 10% of the purchase price into a cash savings account, which they cannot access for five years.
The Loughborough Building Society offers a similar product where it allows family members to put a cash lump sum into a designated account or agree to accept a legal charge over their own home, or a mix of the two, via its family deposit mortgage.
The government also launched a new mortgage guarantee scheme in 2021, but you need a deposit to access it. Through the scheme, the government ‘guarantees’ 95% mortgages for buyers with 5% deposits on homes of up to £600,000. The government guarantees the portion of the mortgage over 80%, which means it will partially compensate the lender if a homeowner defaults on their repayments.
What are the risks and downsides of a 100% mortgage?
One potential downside of a 100% mortgage is that their success depends on rising property prices, they were much more common pre-2008 due to year-on-year house price increases.
However, if property values drop buyers are at an increased risk of falling into negative equity. Negative equity can arise when the value of a property falls, and the value of the loan is higher than that of the property. This could create problems for both buyers and lenders, as homeowners won’t be able to sell, and banks will be stuck with properties worth less than the loan – raising the threat of another potential crash. However, if property prices trend upwards, these risks are negated.
Another downside of the current offerings is its viability in certain areas of the UK, high property prices in London and across the southeast of England mean that it becomes more expensive to purchase the home vs continuing to rent. According to Zoopla, in London, the average rent is £1,815 pcm, but mortgage payments on the average £512,000 property would work out at £2,773 – and that is before accounting for affordability and stress rates.
So, if you’re thinking of taking out a 100% mortgage, weigh up the risks and rewards carefully. While they are an option to help you get on the housing ladder without having to save for years, there is no free ticket, and you’ll have to see if this option works for your finances and where you are wanting to live.
If you’d like to learn more about mortgage products and moving home, get in touch with us and we can help you get the information you need to make the right decisions.
Peter Austin
Peter is a writer and photographer with a great interest in property, design, and the economy.
