Skipton Building Society Takes the Mortgage Market by Storm with the Launch of Its 100% LTV Mortgage Option
Skipton Building Society has introduced a new product that targets renters who find it difficult to save enough for a deposit to purchase a house.
A prominent lender is set to release a 100% mortgage product targeting potential first-time buyers who face difficulties in saving enough money for a house deposit. This marks the first such product to be introduced since the financial crisis of 2008.
Before the financial crisis, it was common for standard home loans to not require a deposit from the borrower. However, this practice was discontinued and the last such loan product was terminated in the aftermath of the crisis.
Skipton Building Society is preparing to introduce a mortgage product designed to assist individuals who are stuck in a cycle of renting and lack financial support from family members. This new product is aimed at those who are unable to save up enough money for a home deposit.
While the specifics of the mortgage product are still unknown, a report in the Times indicates that it will allow borrowers to obtain up to 100% financing. To qualify, borrowers will need to demonstrate a consistent track record of paying rent similar to mortgage payments for a period of up to two years. Furthermore, the mortgage will be fixed for more than two years to mitigate the risk of negative equity.
This proposed mortgage product is distinct from other specialised options currently offered in the market that permit borrowers to obtain financing up to 100% of the property's purchase price. These alternatives often necessitate financial assistance from a family member, who must provide some form of collateral for the home loan. Consequently, they are typically only accessible to individuals with affluent families.
The launch of this mortgage product is expected to take place within the coming days or weeks.
This development has the potential to reignite discussions surrounding responsible lending practices, particularly during a period of economic uncertainty with regards to property values. This also aligns with recent rumour's indicating that the government may reintroduce the help-to-buy scheme, which halted accepting new applications toward the end of last year.
Many potential homebuyers are facing greater difficulties in accumulating a sizable deposit due to various factors, such as escalating house prices and historically high private rents. A recent report by the Halifax revealed that first-time homebuyers had to put down an average deposit of £62,470 in 2022, marking an increase of 8% compared to the previous year.
It has been 15 years since the last UK-based lender ceased providing standard 100% mortgages, which did not mandate a deposit from the borrower.
Mortgages without a required down payment have generated controversy due to the heightened exposure of homebuyers to potential declines in property values. Without any equity to mitigate the impact of a decrease in value, even a minor dip in housing prices could potentially result in homeowners owing more on their mortgage than the home's actual worth.
Northern Rock's Together home loan was the most infamous 100%+ mortgage, enabling individuals to borrow up to 125% of their property's value. However, it was removed from the market in 2008 after being met with criticism for promoting easy credit and lenient lending practices.
During the month of April, Stuart Haire, the Skipton group's CEO, announced that the company was working on a mortgage product designed to assist individuals who are unable to save for a house deposit due to being caught in a rental cycle. The product aims to provide a pathway for these individuals to access the property market and establish their own homes.
He further explained that certain individuals have a satisfactory track record of making timely rental payments over an extended period and can demonstrate their capability to afford a mortgage. Nonetheless, their sole obstacle to homeownership is the inability to save sufficient funds for a deposit and the unavailability of financial assistance from relatives or acquaintances.
As part of their lending process, mortgage providers conduct evaluations of an individual's affordability to determine the amount they can borrow. According to David Hollingworth, an associate director at the broker firm L&C Mortgages, a solid financial standing is essential if one intends to secure a mortgage without a deposit. This highlights the significance of meeting affordability criteria when seeking a mortgage.
In addition, he suggested that utilising one's rental history to reinforce their financial stability would significantly benefit first-time homebuyers. However, Skipton has yet to disclose the specifics of the agreement.