Skipton Building Society has launched its long-trailed 100% mortgage product to market, targeting renters looking to step onto the property ladder.
The new 5-year fixed-rate mortgage does not require a guarantor and comes with an interest rate of 5.49% up slightly on the average 5-year fix which comes in at 5%. The product has a max loan size of £600k.
To access the deal borrowers require 12 months of on-time rental payments and a good credit history.
Jamie Lennox, director at Dimora Mortgages, praised the launch of the product: “This is a breath of fresh air in the face of today’s economic challenges.
“It seems the market has been eagerly anticipating a game-changing innovation not only since last September but 2008, and Skipton may have just delivered the masterstroke we’ve all been waiting for.”
However, he also warned of the substantial risks involved with 100% mortgages, suggesting Skipton will be meticulously scrutinising applications to ensure a balance between risk and reward.
Gary Boakes, director at Verve Financial, lauded Skipton’s initiative as a much-needed boost for the mortgage market. He said: “With rents increasing, it is going to be harder and harder for first-time buyers to save for deposits, and this is now going to give them the opportunity to get onto the housing ladder.”
However, Graham Cox, founder at SelfEmployedMortgageHub.com, voiced concerns about the potential dangers of such a product. Cox said: I’m amazed the Prudential Regulation Authority has given Skipton the go-ahead to launch this product.
“It’s like we’ve learnt nothing from the Global Financial Crisis in 2008. I understand the logic of trying to help those who are rent-trapped, and unable to save for a deposit, but to me, it’s addressing the symptom rather than the cause, which is that house prices are too high.
“The grave danger is borrowers will overextend themselves. The slightest fall in house prices, and I believe they’ll fall significantly over the next 12-18 months will leave homeowners in negative equity, with the property worth less than the mortgage balance. Not a great place to be if your income drops and you need to sell.”
Rita Kohli, managing director at The Mortgage Stop, echoed this concern: “Launching this in a market where house prices could fall further is a concern and means that, as advisers, we will need to make sure clients understand the risk of negative equity very clearly.
“But for the right property in the right place, this is just what is needed for some borrowers.”
Ross Lacey, director & chartered financial planner at Fairview Financial Management, also supported the product: “This is good news and certainly something we’d recommend where appropriate.
“Borrowers would still need to meet the affordability tests and be mindful of the increased likelihood of falling into negative equity.
“Something we’d like to see from any lenders who decide to offer 100% mortgages are also product options that borrowers can fall back onto at remortgage time. This can provide a safety net to help borrowers avoid being forced to move onto the standard variable rate if they are remortgaging at a time that coincides with being in negative equity.”
Gareth Davies, director at South Coast Mortgage Services, concluded: “The market has been needing something like this for a long time.
“It’s perhaps slightly peculiar timing with so many concerned about house prices dropping, but clearly Skipton aren’t too worried or they’d have delayed the launch.
“It will be interesting to discover just how tight the scoring will be, and how many people actually get their application agreed.”
