Mortgages: Are 100 per cent no deposit loans about to make a comeback?
One of the UK’s largest building societies is considering launching a no deposit, or 100 per cent loan to value mortgage.
Mortgages which do not need a downpayment, or deposit, were phased out after the financial crisis.
Although 100 per cent or zero deposit mortgages have been available since 2009, lenders will only offer them if a friend or family member is prepared as a guarantor.
Skipton Building Society, it has been reported by the Guardian, is preparing to launch a 100 per cent mortgage for borrowers who are unable to raise a deposit for a house due to constraints caused by renting.
Stuart Haire, chief executive of Skipton Group told Mortgage Solutions : “I can confirm we’re developing a mortgage product to enable people trapped in rental cycles – where they’re prevented from being able to save for a house deposit – to access the property ladder and make a home.
“There are too many people who are trapped in rental cycles. These include 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.”
Skipton and savings rates
Stuart Haire, Skipton Group’s chief executive, told City A.M: “We’ve followed the interest rates up on our savings range whereas… the market practice has been for people to maybe leave the savings rates down, which then supports the margins and the profits of the institutions who could make more profit.”
No deposit mortgages explained
No deposit mortgages are also known as 100 per cent loan to value (LTV) mortgages. and are aimed at borrowers who cannot put down a deposit when they want to buy a property.
Borrowing the entire value of a property can be more risky, so you will not have access to the same mortgage deals you would have if you can put down a deposit.
Lenders consider this type of loan to be more risky, as it only takes a slight drop in the value of the property for it to fall into negative equity. We explain how these no deposit mortgages work and what you need to be aware of.
A 100 per cent mortgage is a mortgage for borrowers who cannot put down a deposit. However they will have to be able to afford the monthly repayments, so these types of no deposit mortgages mean the borrower will either have to have a very good credit history or a family member or friend able to act as a guarantor in case they are unable to make the monthly repayment.
As with standard mortgages, how much can be borrowed with a 100 per cent mortgage will be based on how much you earn, the only difference is with not deposit you have to be able to earn enough to cover the full value of the property.
Lenders can lend up to four times a single annual salary, although many will have a 3.5 times annual salary ceiling.
Rob Gill, managing director at Altura Mortgage Finance said that with first time buyer continuing to struggle in the face of sky-high property prices, 100 per cent mortgages may be an idea whose time has come back.
“The housing market needs innovative solutions and it’s great to see Skipton Building Society, with a sensible approach to affordability and credit score while targeting tenants with a good track record of meeting rental payments, looking to give first time buyers a fighting chance, albeit with strict affordability criteria.
London renters and 100 per cent mortgages
Gill said Skipton’s track record calculator, which calculates the max loan based on rent paid by the potential borrower, shows that borrow the max of £600,000 the borrower needs to have been paying rent of £3,219 per calender month, a rental yield of 6.44 per cent
“In London at least yields, are currently closer to four , meaning many borrowers won’t get close to achieving a 100 per cent mortgage. Indeed, a yield of four per cent or rent of £2,000 per calender month on the same property, gives a maximum loan amount of £372,883, just 62.1 per cent loan to value.”
Could more lenders follow?
Rhys Schofield, managing director at Peak Mortgages and Protection said he expected other lenders to offer no deposit mortgages.
“If you’re trapped in the rental cycle, easily covering your rent but as a result not having the left over cash to save for a deposit that staus quo doesn’t seem very just. For the right customer, being able to help them onto the ladder is a master-stroke. I’d expect other lenders to follow Skiptons lead.”