Skipton launches UK's first 100% no-deposit mortgage since 2008 – which Martin Lewis says could be a 'sensible' option for some renters
Renters struggling to save for a deposit can now get a 100% mortgage from Skipton Building Society. It's the first no-deposit deal – that doesn't require a guarantor's backing – to launch in the UK since 2008, and MoneySavingExpert.com founder Martin Lewis says it could be a "sensible" option for some. We explain who can get it, how it works and the risks you need to watch out for below.
Skipton's 100% mortgage is only available to first-time buyers who have paid their rent in full (and on time) for at least 12 months
Skipton's 100% mortgage is a five-year fixed mortgage and works similarly to other fixed mortgage deals on the wider market, in that you are charged the same interest rate for a five-year period. The main difference is that Skipton's new deal doesn't require a deposit.
This mortgage is aimed at renters who are struggling to save for a deposit (though those who do have a deposit – as long as it's smaller than 5% – can also apply). It's been launched in an era of spiralling rents and increasing property prices. To get one of these mortgages, you:
- Need to be a first-time buyer and 21 years of age or above (this applies to all applicants).
- Need to have been renting for at least 12 consecutive months out of the past 18 and be up to date on all rental payments during this period. Proof of this will be required, which could be via bank statements or confirmation from a letting agent.
- Need to be up to date for at least 12 consecutive months out of the past 18 on household bills, such as council tax and electricity and/or gas. Again, proof will be required.
- Can't have missed any other repayment commitments over the past six months – such as Netflix subscriptions, mobile phone repayments and so on. Any defaults will show on your credit report.
- Aren't looking to buy a new-build flat.
But there is a catch – you can only borrow the equivalent of, or less than, what you pay on rent each month
Normally when you apply for a mortgage, the maximum amount you can borrow is based on your income and outgoings and a lender's specific affordability calculations. Typically, it's roughly your salary multiplied by four to four and a half.
Yet with Skipton's 100% mortgage, the amount you can borrow is not allowed to be more than the equivalent of what you pay each month in rent. In other words, if you pay £1,000 a month on rent, your Skipton 100% mortgage couldn't cost you more than the equivalent of £1,000 a month either. Below we show how much you might be able to borrow based on your monthly rent.
Even if your rent is £1,000 a month though, there's no guarantee you'll be able to borrow the equivalent amount on this mortgage, as you'll still need to pass Skipton's own affordability tests. Where it has concerns about your ability to repay, this may reduce the amount Skipton is willing to lend you. The maximum you can borrow is £600,000.
Depending on where you're planning to live and the value of property there, this mortgage might not be much help. The average first-time buyer property costs £238,000, according to the latest UK House Price Index – and you'd need to be paying more than £1,300 a month in rent to borrow this much.
For help on what information mortgage lenders generally use to determine your borrowing limit, see our How much can I borrow? guide.
Martin Lewis: 'I cautiously welcome this, done carefully, after advice'
Martin Lewis, founder of MoneySavingExpert.com, said: "I've campaigned for years to try and help mortgage prisoners locked in at hideous unaffordable rates, and the spectre of 100% mortgages returning leaves me with mixed feelings.
"Years of property-porn TV shows have spouted the idea that you must buy a house as soon as possible, as big as possible – actually, the real priority is not to overstretch your finances. Before the 2007 financial crash, banks would simply throw mortgage loans out to anyone walking past a branch window; now we need to be more careful.
"So Skipton Building Society's criteria of requiring a good rental track record to prove someone can make mortgage payments is sensible, and so I cautiously welcome it, done carefully, after advice, as an option for some."
The interest rate on Skipton's 100% mortgage is 5.49% – here's how it compares
The rate on Skipton's 100% five-year fix is 5.49% and, unlike most mortgages, it comes without fees. Yet this is quite a premium to pay for not having a deposit – if you could pull together a 5% deposit, there are five-year fixes at 95% loan-to-value (or LTV, which is the proportion of the property's value you need to borrow) that are currently significantly cheaper.
The table below shows how rates on five-year fixed mortgages compare across the LTV bands. Remember that mortgages tend to get much cheaper as you reach 90%, 80%, 75% and 60% LTV.
As you can see, Skipton's 100% mortgage is almost £3,000 more expensive than the top 95% mortgage.
|60%||3.9% + £1,403||£11,562|
|75%||3.99% + £999||£14,430|
|80%||4.18% + £1,239||£15,767|
|90%||4.44% + £999||£17,999|
|95%||4.6% + £300||£19,292|
|100% (Skipton)||5.49% + £0||£22,080|
Always weigh up the risks first, including whether your mortgage could end up costing more than your home
Beyond 100% mortgages being more expensive, they also come with a greater risk of negative equity. This is where the value of your mortgage becomes more than the value of your property – something that might happen if property prices were to drop significantly.
Where you have a 90% mortgage (in other words, a 10% deposit), property prices would need to drop by more than 10% for you to risk falling into negative equity. Yet with a 100% mortgage, prices wouldn't need to drop very far for this to happen.
Plus, the less time you've had your mortgage for, the more likely you'll fall into negative equity as a result of property prices dropping. That's because in the early years of your mortgage term more of your monthly repayments go towards repaying the interest on your mortgage rather than the capital balance (meaning your LTV remains high for the first few years of the mortgage).
For example, if you took out £150,000 via a Skipton 100% mortgage at 5.49%, after five years you would have made £55,200 worth of repayments, yet your mortgage balance would still be £137,000 – equivalent to an LTV of 91%. Now let's say that your property had dropped to £140,000 in value during that time. With a mortgage balance of £137,000, you'd have an LTV of 98% instead.
Negative equity can have a seriously detrimental impact, as it'll mean you'll likely struggle to remortgage and possibly move home (as there are not many remortgage deals available where your LTV is 95% or more). If you can't remortgage, you might end up stuck on your current deal and be unable to switch to a cheaper one.
You can overpay on the mortgage – and take it with you if you move
Similarly to most fixed-rate deals, Skipton's 100% mortgage allows overpayments of up to 10% a year. See our Should I overpay my mortgage? guide for the pros and cons.
The mortgage is also portable, which means you might be able to take the deal with you if you decide to move to a new property during the term.
However, as is often the case with mortgages, Skipton's deal comes with an early repayment charge, meaning you'll need to pay a fee – potentially £1,000s – if you wanted to ditch this mortgage before the five years are up.