100% Mortgages are back (or are they?)

If you have ever dreamed of owning your own home but can't envisage being in a position to get together the normally required 5 or 10% deposit then you can't have failed to miss the exciting news this week that Skipton Building Society are now offering 100% mortgages - No, it's not 2008 and yes you did read that right.

But is the market ready for the return of 100% mortgages when so many people had their fingers burned from the 2008 crash, and what are the limitations.

I think it's important to point out why 100% mortgages are needed and what place they have in the mortgage market. Following the end of the Help to Buy Scheme in March 2023 and the Government effectively abandoning aspiring homeowners there is a massive gap in the market for any kind of assistance, this offering from Skipton goes some way to plugging that gap, although further help will be needed if the UK is to meet it's housing targets in the future.

As ever the devil is in the detail, so lets take a closer look at what Skipton are offering and the key criteria that comes with it:

5 Year Fixed Rate at 5.49% up to 100% LTV

·????Each applicant must be a First Time Buyer

·????Each applicant must be aged 21 or over

·????The same people who are renting now (and have been for the last 12 months) must be the same people on the mortgage (Exceptions apply - see our website for more information)

·????Must have proof of having paid rent for at least 12 months’ in a row, within the last 18 months

·????Must also have 12 months experience paying all household bills within the last 18 months

·????Each applicant will have no missed payments on debts / credit commitments in the last 6 months

·????The monthly mortgage payment must be equal to or lower than the average of the last 6 months rental cost

·????The deposit must be less than 5%

·????Maximum loan size ￡600,000

·????Not available on New Build flats

My first observation is that they are only offering a 5-year fixed rate, at a relatively high rate and I have seen some criticism of this online. Now, I'm usually at the front of the queue when it comes to giving lenders "feedback", but in this instance I think they've got it right. The "high rate" is relative to market conditions, where 85% borrowing with a high-street lender currently comes at a rate of around 4.5%, and the longer deal protects both the lender and the borrower from the obvious risk of negative equity - after 5 years a house should have risen in value sufficiently to give you some additional equity in the property, along with having reduced your mortgage balance by virtue of your monthly payments.

Sure, some people will buy well and lower rates may be accessible after a couple of years, but they will do to remember how they got onto the property ladder in the first place and compare their mortgage payments against paying rent and saving for a deposit, in the midst of a cost of living crisis.

The biggest issue as I see it is with affordability, and that issue isn't solely down to Skipton but as much to do with a still-inflated property market. A quick Google search will tell you that the average house price in the UK is ￡290,000 as of January 2023 and the average rent in the UK is ￡1,143 (or ￡830 if you exclude London). Then you may wonder what those figures translate to in terms of mortgage borrowing . Well, ￡1,143 would allow you to borrow ￡213,103 and ￡830 would get you to ￡154,746, both of which are well short of the average UK house price. In the case of having higher borrowing potential based on your salary, Skipton will cap your borrowing at the maximum allowed in relation to your rental payments over the last 12 months.

But remember, the idea of this mortgage is to help you get onto the property ladder, from which people often move up to bigger and more expensive houses as salaries increase and families grow. It's not designed for people looking to buy their dream house.

The median salary for men between 22 and 29 was ￡26,856 in 2021, and for women ￡25,115 (I'll save the disparity discussion for another day). These combined incomes would allow you to borrow around ￡233,000, coupled with a 10% deposit this would allow an average couple to buy for around ￡255,000 with a larger mortgage at a slightly lower interest rate. So there is still a big benefit to saving up for a deposit, if you want to maximise your borrowing as young people often do.

For the most part the criteria is logical and makes sense, as you would expect from Skipton Building Society . It's only available to First-time buyers, there's a cap on the size of the mortgage and it's not available on new-build flats where values can be less predictable than that of houses and therefore runs the risk of negative equity.

I think the key to the success of the product will be in the Underwriting and particular attention will need to be paid to valuations and perhaps even to geographical trends, we are technologically more advanced than we were back in 2008 and all data should be used in conjunction with applications to avoid putting applicants at risk. With some people predicting house prices falling over the next 12-18 months the risk of negative equity is high and the consequences can be disastrous and long lasting.

The question for most aspiring homeowners will be this; Do you make the leap now and try for an approval now, knowing the potential risks of negative equity. Or, do you wait until you have saved up a deposit while property prices are still potentially increasing around you?

Overall I think Skipton have largely got this product right, it's not for everyone and it has it's limitatations in terms of affordability but as a product that is designed to help people get onto the property ladder it's inovative and it achieves it's objective. As it's brand new to the market it's been launched cautiously as you would expect from most lenders, but with plenty of room to improve and expand if there is a market for it.

It's also a shot in the arm for the mortgage market, which is much needed after the negativity of the last 6 months and it's nice to be able to talk to clients about something positive rather than just talking about interest rate predictions.

I will be watching with optimism how Skipton fare and I will no doubt be submitting a few applications myself in the coming weeks and I'm sure I'll receive the usual high quality service that you get with Skipton. I expect other lenders will also be keeping an eye on Skipton and I wouldn't be surprised if we see other lenders following suit in the future.

I would always recommend seeking independent advice when looking for a mortgage, so If you are interested in finding out more about this mortgage, or other mortgages then feel free to get in touch with me for a chat.