Skipton Building Society has launched a 100% loan-to-value mortgage for renters, which was largely welcomed by brokers, although many pointed out the danger of borrowers falling into negative equity.
The mutual’s Track Record Mortgage allows tenants with “a strong track record of rental payments” to borrow the total cost of a property on a five-year fixed rate at 5.49%, over a maximum of 35 years.
The loan is only available to renters over 21 for their first homes, and comes with no fees.
The lender says its research shows that eight in ten tenants feel “trapped in rental cycles” because of the high rents and the rising living costs, which prevents them from buying a home.
It adds that there are 4.6 million households renting privately across England, which has jumped by 112% since 2000.
It adds: “As a responsible lender, Skipton is ensuring that the buyers will not be paying more on a monthly basis than what their current rent is.”
The average cost of a first-time buyer home lifted 2% to a record £224,963 in April, according to data from Rightmove last week.
Skipton is one of a few lenders on the market to offer a 100% LTV mortgage, but unlike most it will not require a guarantor.
Since the 2008 financial crisis, few 100% LTV mortgages have been made available, as regulators have deemed these loans can contribute to instability across the wider economy, if borrowers take on lending they cannot afford.
Currently, there are 15 other zero-deposit products on the market, according to Moneyfacts, accounting for just under 0.3% of the UK market.
Skipton Home Financing chief executive Charlotte Harrison 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.
“It is time for a rethink on these massive barriers to home ownership, and we’re proud to take the lead on bringing to the market, solutions for such a massive social problem.”
She adds 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.
“In building our mortgage product with these challenges at the centre we’re ensuring considerations around negative equity have been fully taken into account.”
The move was generally welcomed by brokers, who see it as a chance to move tenants out of the crowded rental market and into homes, but others say this loan may leave borrowers dangerously overextended.
L&C Mortgages director of communications David Hollingworth says: “Skipton’s Track Record Mortgage attempts to serve a part of the market that has recently been wholly reliant on help from the Bank of Mum and Dad.
“Renters will have been frustrated by the need to build a big deposit to meet high purchase prices, whilst covering steep rental payments at the same time.
“This deal recognises the fact that hard-pressed first-time buyers that have met their rent and household bills over a sustained period of time should demonstrate their ability to meet a mortgage payment lower than their rent, irrespective of the existence of a deposit.
“It won’t solve all the difficulties for all FTBs and there will be affordability limitations on the borrowing amount which may still not meet the required purchase price.
“However, it offers a measured approach that gives credit for the fact that many tenants will have built up a strong track record of managing their housing costs responsibly.
“There will always be concerns that no deposit could risk negative equity but this is a longer-term product for that reason and if it can help some accelerate the move from renting to homeownership it could be a significant new product.”
But SelfEmployedMortgageHub.com founder Graham Cox adds: “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.”
