Skipton’s new 100% LTV mortgage hit mainstream media news outlets this month. How far will the product go to support first-time buyers?
Skipton Building Society hit the mainstream news after launching their new Track Record Mortgage, at 100% loan to value (LTV).
The deposit-free product is available to first-time buyers aged 21 or over who can evidence a track record of on-time rental payments over a twelve-month period. Borrowers would be put onto a five-year fixed rate at 5.49% over a maximum of 35 years, with no fees attached to the product.
With 4.6 million households privately renting across England, the product comes at a critical time for renters looking to make their first steps on the property ladder. Research from the lender reveals that eight in ten tenants feel “trapped in rental cycles” due to rising living costs and high rental payments.
According to Rightmove, the average cost of a first-time buyer home is at a record high of £223,963. As such, how useful will this new product be to first-time buyers looking to make their first purchase?
How effective will the mortgage be in reality?
On a standard mortgage application, the maximum amount you can borrow will be determined by a number of factors, such as a lender’s affordability calculation and your income and outgoings. Typically, you’ll be able to borrow up to 4.5 times your annual salary.
However, Skipton’s 100% mortgage will cap the borrowing amount to be the equivalent of what an applicant pays monthly in rent. For example, if your monthly rent is £1,000, your mortgage will have to cost you no more than the equivalent of £1,000 a month.
This means that if your monthly rental payments are £1,000, your maximum mortgage would be £163,000. This is before Skipton’s affordability tests, so you may be restricted even further.
To see a clear breakdown of how much you may be able to borrow based on your monthly rent, visit the MoneySavingExpert page.
When looking at this maximum amount in comparison to the average first-time buyer’s home price of £223,963, it’s easy to recognise where the product falls short. In order to purchase a property at this price, applicants will need to be paying more than £1,300 a month in rent.
Furthermore, according to Wayhome, a Gradual Homeownership provider, the average first-time buyer could only use this mortgage to purchase a property worth £189,833. This is based on the current estimated average household income of £42,279.
Nigel Purves, the Co-founder and CEO of Wayhome, commented:
“With interest rates climbing and house prices remaining at record highs, the nation’s beleaguered first-time buyers will no doubt be jumping for joy at the prospect of a 100% mortgage. However, the devil is very much in the details”
"Not only are you unlikely to qualify for a mortgage on the house you actually want due to income limitations and lending caps, but those that do make the cut face a far higher monthly repayment cost as a result.
"With the market also showing signs of cooling in recent months, there’s a very real chance you could find yourself falling into negative equity at the slightest sign of a house price downturn.”
On the other hand, Charlotte Harrison, the Chief Executive of Skipton Home Financing, says, “We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time and can evidence affordability of a mortgage – but there is currently no solution for them to buy a property due to lack of savings or access to family wealth.”
Harrison continues that the loan has “been carefully created with the challenges generation rent is facing in mind, together with the potential risks and challenges they may encounter in the future too.”
Is the mortgage worth the risk?
What this product demonstrates is Skipton’s commitment to finding new ways to support borrowers and the wider mortgage market as a whole. We understand the need for these types of innovative products to help support first-time buyers, but with a shortage of properties and house prices expected to shrink over the coming months, there’s a definite need to proceed with caution.
First-time buyers need to be aware of the risks that come with 100% LTV mortgages, and lenders offering these products must ensure they have measures in place to protect buyers should something go amiss.
16th May 2023