Skipton's 100% mortgage is a five-year fixed mortgage and works similarly to other fixed mortgage deals on the wider market, in that you are charged the same interest rate for a five-year period. The main difference is that Skipton's new deal doesn't require a deposit.
This mortgage is aimed at renters who are struggling to save for a deposit (though those who do have a deposit – as long as it's smaller than 5% – can also apply). It's been launched in an era of spiralling rents and increasing property prices. To get one of these mortgages, you:
- Need to be a first-time buyer and 21 years of age or above (this applies to all applicants).
- Need to have been renting for at least 12 consecutive months out of the past 18 and be up to date on all rental payments during this period. Proof of this will be required, which could be via bank statements or confirmation from a letting agent.
- Need to be up to date for at least 12 consecutive months out of the past 18 on household bills, such as council tax and electricity and/or gas. Again, proof will be required.
- Can't have missed any other repayment commitments over the past six months – such as Netflix subscriptions, mobile phone repayments and so on. Any defaults will show on your credit report.
But there is a catch – you can only borrow the equivalent of, or less than, what you pay on rent each month.
Normally when you apply for a mortgage, the maximum amount you can borrow is based on your income and outgoings and a lender's specific affordability calculations. Typically, it's roughly your salary multiplied by four to four and a half.
Yet with Skipton's 100% mortgage, the amount you can borrow is not allowed to be more than the equivalent of what you pay each month in rent. In other words, if you pay £1,000 a month on rent, your Skipton 100% mortgage couldn't cost you more than the equivalent of £1,000 a month either. Below we show how much you might be able to borrow based on your monthly rent.
How much can I borrow with a Skipton 100% mortgage? (1)
|
Monthly rent |
Maximum mortgage (2) |
|
£500 |
£81,000 |
|
£750 |
£123,000 |
|
£1,000 |
£163,000 |
|
£1,250 |
£204,000 |
|
£1,500 |
£244,000 |
|
£2,000 |
£325,000 |
- Based on a 25-year mortgage term. (2) Note that Skipton's specific affordability calculations might mean you're not able to borrow as much as displayed in the table as this is for example only.
Even if your rent is £1,000 a month though, there's no guarantee you'll be able to borrow the equivalent amount on this mortgage, as you'll still need to pass Skipton's own affordability tests. Where it has concerns about your ability to repay, this may reduce the amount Skipton is willing to lend you. The maximum you can borrow is £600,000.
Depending on where you're planning to live and the value of property there, this mortgage might not be much help. The average first-time buyer property costs £238,000, according to the latest UK House Price Index – and you'd need to be paying more than £1,300 a month in rent to borrow this much.
The interest rate on Skipton's 100% mortgage is 5.49% – here's how it compares.
The rate on Skipton's 100% five-year fix is 5.49% and, unlike most mortgages, it comes without fees. Yet this is quite a premium to pay for not having a deposit, if you could pull together a 5% deposit, there are five-year fixes at 95% loan-to-value (or LTV, which is the proportion of the property's value you need to borrow) that are currently significantly cheaper.
Always weigh up the risks first, including whether your mortgage could end up costing more than your home.
Beyond 100% mortgages being more expensive, they also come with a greater risk of negative equity. This is where the value of your mortgage becomes more than the value of your property – something that might happen if property prices were to drop significantly.
Where you have a 90% mortgage (in other words, a 10% deposit), property prices would need to drop by more than 10% for you to risk falling into negative equity. Yet with a 100% mortgage, prices wouldn't need to drop very far for this to happen.
Plus, the less time you've had your mortgage for, the more likely you'll fall into negative equity because of property prices dropping. That's because in the early years of your mortgage term more of your monthly repayments go towards repaying the interest on your mortgage rather than the capital balance (meaning your LTV remains high for the first few years of the mortgage).
For example, if you took out £150,000 via a Skipton 100% mortgage at 5.49%, after five years you would have made £55,200 worth of repayments, yet your mortgage balance would still be £137,000 – equivalent to an LTV of 91%. Now let's say that your property had dropped to £140,000 in value during that time. With a mortgage balance of £137,000, you'd have an LTV of 98% instead.
Negative equity can have a seriously detrimental impact, as it'll mean you'll likely struggle to re-mortgage and possibly move home (as there are not many re-mortgage deals available where your LTV is 95% or more). If you can't re-mortgage, you might end up stuck on your current deal and be unable to switch to a cheaper one.
We always advise speaking to a mortgage broker. To find out the best route and options for you when looking for a mortgage, please call our offices who work alongside Matthew at Roost Finances.