Accross the media, it’s been reported that Skipton has launched a deposit-free mortgage aimed at renters.
A handful of other no-deposit mortgages are currently available, but they all rely on a guarantor giving the home buyer financial backing.
The new Skipton deal does not require a guarantor and the new mortgage coined “Track Record Mortgage” is designed to help those who haven’t managed to save for a deposit, but have managed to keep up with rental payments for 12 months get a mortgage without a deposit on the understanding that they’ve been able to keep up with rental payments for 12 months in a row.
Whats being offered?
Skipton Building Society are offering 100% LTV mortgages for first time buyers only who are curently renting. They must be able to show a track record of paying all monthly rent and household expenditure for a minimum of 12 months of the last 18 months.
No deposit is required and if you do have a depsoit of 5% or more, then this product will not be for you.
The mortgage deal would be fixed for 5 years at a rate above the market average.
The big catch – the new monthly mortgage payment must be equal to or lower than the rent that you’re currently paying. Because Skipton will offer a maximum term of 35 years, a 100% mortgage of £1,000 per month would allow you to borrow £186,442 – best case scenario.
Even if you do manage to find a house in the current market that costs less than or equal to your monthly mortgage payment, you’ll still need to pass skiptons affordability test. Under this test, the mortgage amount can be no more than around 4.45x your gross annual income, with loans and other commitments further reducing your borrowing capacity.
How does my rent translate into a property purchase price with a 100% track record mortgage?
- If you pay £750 per month in rent, you could buy a house worth no more than £139,831.
- If you pay £1000 per month in rent, you could buy a house worth no more than £186,442.
- If you pay £2000 per month in rent, you could buy a house worth no more than £279,662.
Remember, even if you do find a house you’d like to buy within these parameters, you’ll still need to pass skiptons affordability calculator.
- To buy a house worth £139,831, you’d need a joint income of at least £30k with no commitments.
- To buy a house worth £186,442, you’d need a joint income of at least £40k with no commitments.
It’s clear that this product, although generally welcome, will only help a small portion of those first time buyers who have a comfortable income and are paying a higher than average rent who do not plan to stretch their house buying budget to far.
Who’s eligible for this deal?
To be eligible you must:
- Be a first time buyer
- Be over 21 years of age
- Have a deposit of less than 5%
- No missed credit payments in the last 6 months, and pass a credit check
- No more than a £600k loan (though to get to this point, you’d need to be paying £3,200 in rent)
- Not looking to buy a new build flat
- Have proof of paying rent for 12 months in a row from a registered letting agent within the last 18 months and have similar experience of keeping up with household bills
- The same household who’s rented for 12 months, must be on the new mortgage. That means the new mortgage payment must be paid wholly by the same peopel who’ve provided the proof of paying rent during the 12 month period.
In summary, yes, 100% products do exists, and you can borrow based on rental income. But you’ll still need to pass the normal affordaiblity and credit checks. The relevance of the rental calculation is that in unlocks a 100% mortgage, whereas you’d normally need a 5% deposit.
Because the maximum mortgage payment cannot exceed the maximum rental payment, it’s likely that those that could qualify for this deal will have a reasonable surplus income, which may allow them to save for a 5% depsoit with a year or two anyway.
100% mortgages are not without risk – particularly in the current market, there is a risk that if the property falls in value, you could end up in negative equity, and become a mortage prisoner – this is when it becomes difficult to move your mortgage to a new lender or secure new mortgage deals.