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What is a 100% mortgage and is it right for you?

What is a 100% mortgage and is it right for you?

17th May, 2023

Saving for a mortgage deposit is no easy feat, especially when you’re already paying for rent and bills elsewhere. Plus, with the likes of rental prices and household bills continuing to soar, it’s no surprise that many people across the UK are experiencing difficulties with getting their foot on the property ladder. So, if you’re one of those people, could a 100% mortgage be right for you?

Mortgages that require zero deposit were a lot more common years ago, but lenders pulled back on offering them following the financial crisis of 2008.

Recently, Skipton Building Society announced their new ‘track record mortgage’, with a potential borrowing amount of up to £600,000 – the first of its kind in the UK in over 15 years. The mortgage will enable first-time buyers to purchase their own home without having to pay a deposit or, if they still wish to pay a deposit, then it must be less than 5%.

As the name suggests, this mortgage will only be offered to applicants who are able to prove that they have a track record of paying both their rent and household bills (such as council tax and utilities) on time and in full, for at least 12 consecutive months in the last 18 months.

Applicants also must not have missed any payments on other debts or credit like phone bills or credit cards, over the last six months.

Other eligibility criteria must be met, including that each applicant must be a first-time buyer who is aged 21 or over. Also, this track record mortgage is not available to those who are looking to buy a new build flat.

This mortgage will require buyers to commit to paying a fixed interest for five years, meaning that the interest paid on the mortgage will remain the same regardless of whether interest rates go up or down in that time.

While this type of mortgage could be ideal for those who are currently renting and want to buy their own home, it is important to consider the risks. Forecasts from the Office for Budget Responsibility (OBR) show that house prices could fall by 10% over the next couple of years, meaning there is a bigger risk of negative equity with a 100% mortgage. Homeowners will find themselves in negative equity when their mortgage is more expensive than the property itself.

Skipton’s track record mortgage will also not allow applicants to borrow more than what they’re currently paying on rent each month, meaning they can only borrow the same amount or less than their rental costs. This is different to a standard mortgage, where the maximum borrowing amount is usually based on the applicant’s income and outgoings, as well as the lenders affordability requirements. Applicants will be subject to Skipton’s affordability tests, too.

So, while this track record mortgage certainly sounds promising to thousands of tenants across the UK who dream of owning their first home, it is important to consider both the advantages and risks before making the commitment.

If you’re currently looking to secure a mortgage and would like to know more, our friendly team of advisors at One Call Mortgage Hub are always happy to help.

Written by: Shannan Errington

*Please note that the above information has been gathered through secondary research. The information provided is not based on our opinion. You should seek further guidance and information before making an informed decision.
*Your home may be repossessed if you do not keep up repayments on your mortgage.


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