What could go wrong with Skipton's offer?

[SueEllen]

100% mortgage coming back.

https://www.bbc.co.uk/news/business-65498421


A deposit-free mortgage specifically aimed at people currently renting has been launched by a UK building society.

While a handful of other no-deposit deals are available, they all need the financial backing of family or friends.

Skipton Building Society says while its deal requires 12 months of on-time rental payments and a good credit history, it does not need a guarantor.

However, at 5.49% the interest rate is more expensive than the average five-year fix of 5%.

Generation Rent, which campaigns on behalf of private renters, says the shortage of affordable properties within the budget of first-time buyers is still the main stumbling block for those struggling to get on the property ladder.

"It's not necessarily going to help all the people who are looking to buy a first-time home if there aren't more houses available to buy," says Will Barber Taylor from Generation Rent.

Currently there are 15 other zero-deposit products on the market, according to financial data firm Moneyfacts, accounting for just under 0.3% of the UK market.

First-time buyers are facing an uphill battle. Rapidly rising rents have made saving for a deposit increasingly difficult, at the same time that the government's flagship Help to Buy scheme, aimed at helping first-time buyers, is no longer open.

The Skipton, which is the UK's fourth biggest building society, says it recognised a "gap in the market".

Stuart Haire, the society's chief executive, told the BBC that "until now there has been no solution for them [renters] to buy a property due to a lack of savings or access to family wealth".

David is renting with his partner and new baby in North Yorkshire. "It's getting that deposit together that's really difficult with rent prices," admits David.

"If I can prove I've been paying rent for the last 10 years of my life why can't I have a mortgage."

The government's Help to Buy scheme saw the Treasury lending homebuyers between 5% and 20% of the cost of a newly-built home, and up to 40% in London.

The scheme closed to new applicants in October 2022, but there are rumours that something along similar lines could be re-introduced.

But a rise in zero-deposit mortgages may not be welcomed by everyone, as riskier mortgages with a high loan to value were a root cause of the 2008 financial crash.

Mortgage expert Andrew Montlake says then lenders were just interested in volume rather than quality.

"The world is very different now," he says, and adds that his opinion has changed over the past 15 years, as long as the 100% loan value mortgages are "underwritten sensibly".

[malvolio]

It depends on the criteria for qualification. If you have a solid credit rating and a provable history of on time rental payment, its probably a good risk.

Don't forget there are well paid people in solid jobs that can't afford to save 10% or so of dead money against a £300k house purchase.

The point about entry level houses is valid though...

[northernladuk]

Interest they call it a 'gap in the market'. It's a gap because it didn't work so lenders stopped doing it. There is a 'gap' giving toxic loans and mortgages to people who are likely to default a well, doesn't mean it needs filling

[malvolio]

Interest they call it a 'gap in the market'. It's a gap because it didn't work so lenders stopped doing it. There is a 'gap' giving toxic loans and mortgages to people who are likely to default a well, doesn't mean it needs filling

"Toxic loans" were given to people with no historical evidence they can continue to pay the bill's as part of a cunning plan to boost the lending banks' profitability. That does not appear to be Nationwide's approach.

[Fraidycat]

Don't forget there are well paid people in solid jobs that can't afford to save 10% or so of dead money against a £300k house purchase.

Whats the earning requirements for someone/couple who can get a £300K zero down mortgage, i would hope it would be 75K minimum.
Im not sure why someone/a couple on 75K wouldn't have been able to have saved £500 a month for the last five years (30K in total). Realistically you should be able to save even more than that.

[Paralytic]

Generation Rent, which campaigns on behalf of private renters, says the shortage of affordable properties within the budget of first-time buyers is still the main stumbling block for those struggling to get on the property ladder.

I really wish these campaigns would get it right and make it clear there's a shortage of property where people want to live, and although that does align somewhat to where people have to live (since that's where they work), that is not the case for a significant number of people who want to get onto the housing market.

There are plenty of houses available elsewhere if people want to move. If the governments levelling up policy, to spread the wealth outside of the southeast, had any traction, that might encourage people to move and ease the issue a little.


As for the new mortgage, given the renters have a proven history of rent payment, the risk should not be any higher than providing a mortgage to someone who qualifies via affordability checks only. I guess the biggest risk is a market fall, but banks are mitigating that by ensuring their valuers are providing (what they regards as) realistic figures, often below what sellers are asking for.

[northernladuk]

Do we read in to this Skipton don't think the house prices are going to drop much? If they do most people that take these up are going to almost certainly going to be a position of negative equity almost from day one? So they aren't worried about this and have a rosier outlook on house prices over the next few years?

If we do have a longer term outlook for a fair drop in the price of houses isn't negative equity on 100% loans going to be a problem? If it is that the homeowners problem not the banks though?

[SueEllen]

Do we read in to this Skipton don't think the house prices are going to drop much?

That's what I read it at.

And considering they are first time buyers without a deposit depending where they are in the country they are going to end up in a property which is likely to small after 5 years.

[DealorNoDeal]

If we do have a longer term outlook for a fair drop in the price of houses isn't negative equity on 100% loans going to be a problem? If it is that the homeowners problem not the banks though?

Assuming the homeowners keep paying the mortgage. If the bank has to repossess though, then the negative equity becomes their problem. That was seen quite a bit in the late 80s. It wasn't seen much in the UK after 2008 but bank repos, with negative equity, were widespread on the Costas, Florida etc.

[Paralytic]

Do we read in to this Skipton don't think the house prices are going to drop much? If they do most people that take these up are going to almost certainly going to be a position of negative equity almost from day one? So they aren't worried about this and have a rosier outlook on house prices over the next few years?

If we do have a longer term outlook for a fair drop in the price of houses isn't negative equity on 100% loans going to be a problem? If it is that the homeowners problem not the banks though?

Not necessarily. There is anecdotal evidence that bank valuations are already coming in under the asking prices being sought by sellers.

It's not be beyond the realms of possibility that Skipton will ensure their valuers come in on the lower end meaning the sellers would have to reduce their price, or the buyers would either have to walk away, or find a deposit matching the difference, effectively putting them in the same position as applying for (eg) a 90% LTV mortgage.