The Return of 100% Mortgages
Major news broke in the mortgage market last week with the launch of a new 100% mortgage product – the first time a product like this has been available for well over a decade. Skipton Building Society introduced their “Track Record” 100% mortgage which was covered by national news and industry commentators, with varied reactions. While we shared the headline details at the time, this blog provides the opportunity to discuss the product in more detail.
The product released from Skipton Building Society is a 5-year fixed rate at 5.49% with no product fee. In terms of the interest rate, at the point of writing, this is around half a percent higher than options available with a 5% deposit.
Firstly, it’s important to be aware of the eligibility criteria. The product is available exclusively to first time buyers as it is designed for those who are essentially trapped renting, unable to save for a deposit, but should be able to make the mortgage payments as shown by their track record of rental payments. Applicants for the “Track Record” mortgage must be aged 21 and over, borrowing up to a maximum £600,000 and borrowing over a maximum 35-year term. Applicants must be able to show 12 months’ consecutive payment of rent and household bills across the last 18 months, as well as having no missed payments on credit commitments in the last 6 months. While the product is available on new build houses, it is not available on new build flats.
Most notably, applicants’ mortgage payments must be no higher than the average of the last 6 months rental payments. With this in mind, combined with knowledge of the product interest rate, we can calculate the maximum mortgage available, based on the rent prospective applicants have been paying. Skipton Building Society have provided an online calculator which can be found along with more information about the product at www.skipton.co.uk/mortgages/track-record-mortgage.
The below examples confirm mortgage availability based on increasing rental payments:
- Rent at £500/month – mortgage up to £93,221
- Rent at £750/month – mortgage up to £139,831
- Rent at £1,000/month – mortgage up to £186,442
- Rent at £1,250/month – mortgage up to £233,052
- Rent at £1,500/month – mortgage up to £279,662
- Rent at £2,000/month – mortgage up to £372,883
- Rent at £2,500/month – mortgage up to £466,104
- Rent at £3,000/month – mortgage up to £559,325
Eligibility remains subject to full assessment and standard affordability calculations, based on personal income and expenditure, as with all residential mortgage applications.
Scepticism regarding the product has centred largely around the impact it will have. Increasing the availability of mortgages would typically cause an increase in house prices, through fundamental supply and demand economics. However, it’s not thought this product will come close to having that level of effect. With mortgage payments on the product being limited to no more than current rental payments, this may mean the product will simply not work for the majority, particularly in areas where house prices are higher. Added to this, the product is only available on a 5-year fixed basis and many first-time buyers are not wanting to take a fixed rate for this length of time while interest rates are viewed as relatively high.
Prospective homeowners may need to consider taking one step back to take two steps forward. With the limits of the product regarding mortgage payments, and therefore what house prices are available, downsizing from the current rental property to something smaller, if practical to do so, could be a route onto the property ladder.
As for all market initiatives, time will tell as to how impactful this 100% mortgage product will be. Stringent eligibility criteria will undoubtedly limit the feasibility of the product for many. Regardless, it has raised further attention to the difficulties first time buyers face in getting on the property ladder. If you want to know more about the “Track Record” mortgage or you have any other mortgage or life insurance query, we’re here to help with free, professional advice.