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A Dream Come True? We look at the UK’s first no-deposit mortgage since 2008.
Renting can often feel like a vicious cycle. Paying somebody else’s mortgage each month while not being to save for a deposit can leave many renters feeling as though they’ll never get on the property ladder. And, as rents continue to rise and available rental stock falls, this cycle is getting even tighter and tighter. Add to that the end of the government’s Help To Buy Scheme, and it’s no wonder renters are feeling trapped.
So, the recent news that Skipton Building Society have just launched a new no-deposit mortgage deal aimed at renters seems to have come at the perfect time. It’s the first mortgage deal of its type* to launch in the UK since 2008, and there’s already a lot of media interest around it. But what exactly is a no-deposit mortgage and, more importantly, how can it work for you? Let’s take a look at the details, applicant requirements, benefits and risks associated with this new deal.
What exactly is a no-deposit mortgage? It’s just what it sounds like – a mortgage for 100% of the value of the property, so no deposit is required. With many lenders asking for deposits of 10-20% of the value of a property, this is a huge advantage to people who might be struggling to save while paying rent each month. In real terms, it means that instead of watching prices rise as you try to put together a deposit, you can simply take out a mortgage and move now.
The risk: Zero-deposit mortgages were one of the factors that contributed to the 2008 worldwide financial meltdown, where borrowers found themselves unable to make repayments on properties that were worth less than the value of their mortgage, leading to mass defaults.
How do I qualify? The Skipton 100% mortgage is a five-year fixed mortgage, which means, similar to other fixed-rate mortgage deals on the market, you’ll be charged the same rate of interest over the next five years. Skipton are offering a 5.49% rate on their five-year fix and, unlike many mortgages, there are no additional fees. To qualify, you need to be a first-time buyer aged 21 or above, have been renting for at least 12 consecutive months out of the past 18 and be up to date on all rental payments during the period, with the same conditions applied to household bills. You also can’t have missed any other repayment commitments over the past six months, including things like Netflix, credit card and subscription services, and proof will be required for each of these criteria. You also can’t be wanting to purchase a new-build flat. If you meet all these criteria, there’s one more catch: you can only borrow an amount where the repayments are equivalent to or less than the amount you currently pay on rent each month. This differs from a more standard mortgage model, where the amount you can borrow is based upon your income, outgoings and a lender affordability calculation. There’s also an option to pay back more than the payment amount, up to 10% per year. Any more than that and you’ll be liable for an early repayment charge. The Skipton product is also portable, meaning you can take it with you when you move to another property.
The risk: Skipton’s rate of 5.49% is higher than other mortgage products on the market, even those offering 95% of the purchase price, and it’s locked in for five years. If interest rates continue to rise in that time, you’ll be in a good position. However, if they fall, you’ll be paying over the odds in interest until the fixed term ends.
Sounds pretty good though, doesn’t it? Yes, it does. However, as with any large financial decision, we recommend taking the time to make sure you can afford to take on a mortgage, and that the payments will be sustainable over the long term, as well as weighing up any potential risks involved. Do your due diligence about the type of property and the area in which you want to buy. While nothing can ever be 100% guaranteed, doing your research makes it far more likely you’ll make a purchase that will rise in value, rather than drop sharply. A mortgage advisor or your bank should be able to assist with any questions you might have. Still, this is an exciting development and another boost to the still-healthy UK property market.
If you’re dreaming of some bricks and mortar to call your own, a no-deposit mortgage might be just the thing you need to finally get you on to the property ladder!
*not requiring a guarantor