Skipton Building Society's Rumored 100% Mortgage: A Game Changer for First-Time Buyers?
Skipton Building Society has been rumoured to be mulling the launch of a 100% mortgage in recent weeks.
The initial rumours started circulating around three weeks ago, claiming that it would be available to tenants and that their rental history would be considered in the absence of a deposit.
News of a possible 100% mortgage has been welcomed especially since the recent end of the Help to Buy initiative, with many first-time buyers still unable to get onto the property ladder due to lender affordability calculations. Rising interest rates and stress testing have also had an impact on their borrowing potential, especially over the last few months.
When I contacted Skipton Building Society through live chat a few weeks ago to see if there was any truth to the claims of a 100% mortgage, they said it was something they were looking into at the time.
According to recent press articles, the potential 100% mortgage will be fixed for at least two years. This could help insulate the lender against housing price volatility in the coming years while interest rates remain high.
The greatest danger for any borrower or lender with a 100% mortgage is that the loan exceeds the property value. This happened following the financial crisis of 2007/2008. Under these conditions, if the lender had to repossess the property and force a sale, it is unlikely they would recover the outstanding loan and that is bad business for any lender.
In the current market, any lender considering 100% mortgages is taken a bold step. However, if the rumours regarding Skipton Building Society are true, it would be surprising if other mortgage lenders did not carefully examine this area of lending.
Lenders compete for business in two primary ways, rate & criteria. Lenders do not want to compete on rates alone as this squeezes their margins resulting in more transactional clients. However, many mortgage lenders are not receiving the same volume of business as they were a year ago and are looking for alternative ways to compete for mortgage business besides competing solely on interest rates. As a result, lending criteria are another option, and more lenders are expected to relax their standards while still adhering to regulatory requirements to allow themselves to receive more business.
It will be interesting to see if this product is brought to market and what products and terms are offered in the coming weeks.
Is Skipton Building Society launching a 100% mortgage?
At the time of writing, there has not been any formal confirmation. However, a number of financial journalists have been reporting that they are developing a product.
Are there any other 100% mortgages on the market at the moment?
No there are currently no other standalone mortgages on the market at present that require no deposit.
What is a 100% mortgage?
It is a mortgage which does not require you to put down a deposit. Therefore the lender is lending 100% of the property value.
If I take a 100% mortgage, does this mean I do not have to put down a penny?
Even if the rumours are true and Skipton Building Society does launch this product, there are still other costs associated with buying a property. These include stamp duty land tax, legal fees, valuation fees, broker fees and removal costs.
When is the Skipton Building Society launching a 100% mortgage?
There has been no specific date set at the time of writing and we do not even know if it is going to happen.
What does this mean for first time buyers?
If the rumours are true, a no deposit mortgage could help more first time buyers get onto the property ladder. This is because they do not have to save for a deposit which they would normally have to do or ask for the assistance of family members. However, if this product did materialise, lenders are still going to perform an affordability assessment which will determine the maximum loan and therefore house price.
Which other lenders offer 100% mortgages or mortgages with no deposit?
There are currently no other lenders that offer these mortgages including Skipton as these rumours have not been confirmed by the lender. The last time 100% mortgages were offered in the UK was pre-2008 and the financial crisis known as the global credit crunch.
Disclaimer
The post is for information purposes and does not constitute advice. readers are advised to seek advice from suitably qualified professionals. R3 Mortgages accepts no liability for errors or omissions.