With the news that the Skipton Building Society is offering first-time property buyers a 100 percent mortgage, we ask whether the time is right for this controversial service to return to the market.
Although it’s notoriously hard for first-time buyers to find affordable properties, the traditional 90 or 95 percent mortgage, which leaves buyers having to find a hefty deposit, is only part of the problem – the main problem, everyone admits, is the shortage of affordable properties.
The economic crash of 2007-10 was caused partly by a collapse in the American property market, where over-confident lenders, certain that property values would continue to rise and that buyers would always be good for their loans, overextended and were caught out by the ‘credit crunch’.
The assumption of offering a 100 percent mortgage, the whole value of the property for sale, must be the same – that prices will always continue to rise and that borrowers will always be good for their loans. The danger is that if prices fall, or borrowers lose their incomes, they are caught in ‘negative equity’, where the value of their property is less than the amount they owe, so they can’t pay their mortgage, and they can’t afford to sell. The result is an increase in repossessions and problems for the lenders.
The Skipton’s offer of 95 percent or 100 percent mortgages comes with a relatively high interest rate of 5.49 percent for a fixed term of five years, compared to an average 5.35 percent guaranteed for two years. Skipton buyers will be able to borrow up to 4.49x their income up to a maximum total loan of £600,000, and a maximum term of 35 years. The mortgage is open to all first-time buyers who currently rent and pass the lender’s affordability criteria.
Trapped
Charlotte Harrison of Skipton said: ‘People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our society.
‘With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people get onto the property ladder.
‘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 re-think 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.’
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She added that the Track Record Mortgage product has been created with potential risks in mind, including concerns around negative equity.
According to Skipton, there are 4.6million households renting privately in England, more than double the number in 2000. Four out of five tenants say they feel trapped in the rental cycle, paying rents that are higher than a mortgage and which prevent them saving a deposit to buy their own home. At the same time house prices for first time buyers have risen by an average of 18 per cent in the last two years, an increase of £39,680.
