When Skipton, one of Britain’s biggest building societies, launched the UK’s first 100% mortgage exclusively for renters last month, reactions varied wildly. While some commentators regard the first-of-its-kind home loan as a “revolutionary” way to get people out of the rental trap and on to the property ladder, others have likened it to the risky loans that contributed to the 2007-08 financial crash.
Skipton’s move appears particularly daring considering its timing: a mere couple of weeks after the mortgage was launched, UK banks and building societies pulled almost 800 residential and buy-to-let mortgage deals in a matter of days, amid growing concerns over future interest rate rises.
Martha*, a 35-year-old mother from London, said the announcement of Skipton’s Track Record Mortgage, which allows eligible first-time buyers to buy a home without a deposit, has given her fresh hope, despite the market turmoil.
“My husband and I will definitely be applying for the 100% mortgage,” she said. “Although there is clearly a lot of risk involved, I do not see how else we will afford to buy a home. We have rented for the past six years and despite our best efforts we have not been able to save enough for a deposit.”
Martha is a qualified social worker but left work to be able to look after the couple’s two children due to the cost of childcare.
“Now our second child is three years old, our childcare costs will go down significantly in September and I will be able to return to work. This will increase our overall income and how much we can save. However, with the cost of living, even with two decent salaries – totalling just under £100,000 per year – it would take us years to save enough for a deposit. Neither of us have access to any generational wealth.”
The couple spends approximately £2,000 on monthly rent and bills, which, Martha said, would be equivalent to paying for a mortgage and bills.
“We have looked into other schemes for first-time buyers. The 5% deposit scheme was an option, but we haven’t even been able to save 5% because of rising living costs. I am optimistic that a 100% mortgage would really help us and we would be able to afford to pay all the other associated costs, if given the opportunity.”
Martha is one of dozens of people who responded to a Guardian callout that asked renters in the UK whether they would apply for a 100% home loan.
While various respondents said they were interested in obtaining such a mortgage, few appeared to be eligible for Skipton’s no-deposit loan, as house prices in their areas were much higher than the maximum amount they would be able to borrow.
Sam, 27, the head of department at an independent school, from London, was among a number of people who said they would not be able to apply unless they moved.
“Applying for a 100% mortgage is definitely something I’m seriously thinking about, but two-bed properties would be in the £450,000-£500,000 price range, so buying in London is not an option with this mortgage, even with a decent wage of over £60,000,” he said.
“I’d consider moving further out, though, finding a new job and buying something cheaper and smaller. I’m obviously concerned about the fluctuation of the housing market at the moment, and with a 100% mortgage you’re relying on the value of your property increasing, or you’ll lose money – which is a distinct possibility. But owning something is better than nothing, and I could begin building capital instead of wasting tens of thousands on rent every year.”
Apart from being first-time buyers, each applicant to Skipton’s 100% mortgage must have less than a 5% deposit, no missed payments on debts or credit commitments over the past six months, proof of having paid at least 12 months’ rent in a row during the past 18 months, and experience of paying all household bills, including utility bills and council tax, for at least 12 months in a row during the previous 18-month period.
Daniel Winter, 41, a project manager at local government and a father-of-two from Matlock in Derbyshire, attempted to apply for the mortgage, but was turned down by the lender’s affordability algorithm.
“My wife, Helen, and I have tried and failed miserably to save enough for a deposit. We only have £6,000 saved up towards a mortgage, which we could have used to pay for fees and moving costs.”
The couple were initially deemed eligible for a Skipton home loan of up to £105,951, which was based on their – relatively modest – monthly rent payments of £650 over the previous six months, their rental “track record”.
However, when Winter reached the second step of the application – the affordability calculator – the amount offered was even lower.
“I entered my income of £43,000 and £12,000 for my wife, and asked for £220,000, which is the absolute minimum we would have to spend on a house to stay in this area. But the affordability calculator said the maximum I could borrow was £37,750,” Winter said.
“Bear in mind, my outgoings are very low, with just a small loan for a car and about £500 on a credit card.”
Skipton’s lending criteria specify that applicants for its 100% mortgage can only borrow the lower amount after completing the track record calculator and its affordability calculator.
“We know our rent is an absolute bargain, but this means that, based on our rent record, this 100% mortgage couldn’t work anyway, because it would limit us to borrowing just £105,951.” Winter said. “It is really frustrating. I am already paying for a mortgage – just not for my own.”
Nico*, a self-employed business owner from Bath, shared Winter’s concerns over the fact that the Skipton no-deposit mortgage can only work for people who had spent substantial amounts on their rent previously.
“This product rewards renters who have chosen to or have had to pay really high rents, and people who are able to move from a place with expensive rents to a place with much less expensive prices for a first home,” he said.
“People who are not overpaying for their monthly rent and are slowly accruing a deposit, however, will still be no better off, as this product simply won’t help them in purchasing a family home.”
Nico said he fears that Skipton’s 100% mortgage may price renters in cheaper parts of the country out of their own areas.
He said: “People like myself, who live in stable and affordable rented accommodation, might even be worse off in some places if renters can secure a home loan after taking their big city rental cost and moving into smaller local communities.”
*Names have been changed