How Does Skipton’s 100% Mortgage Work? | Tembo blog
If you’re living in a rental property and you’re struggling to save a deposit, Skipton Building Society’s new 100% mortgage could hold the key to your first home.
It’s the first no-deposit deal of its kind to be launched in the UK since 2008. A number of lenders do already offer 100% mortgages, but they’re only available to applicants with a guarantor or family support.
With the help of Skipton’s Track Record Mortgage, more renters will be able to get on the property ladder without help from family, or needing to spend years saving.
But are 100% mortgages worth it? What are the eligibility requirements for Skipton’s 100% mortgage and are there any alternatives?
What is a 100% mortgage?
A 100% mortgage is a type of loan where you borrow the full value of your chosen property. This means you won’t need to save a deposit like you would with a standard mortgage.
When buying a property, most borrowers need a deposit of at least 10%. Some lenders will accept a 5% deposit, particularly if the buyer has a guarantor or is using a scheme such as Deposit Unlock. The smaller the deposit, the more risk you pose to a lender, so the eligibility for 95% LTV mortgages will be stricter, and the interest rate is typically higher than for example a 70% LTV mortgage.
100% mortgages used to be much more common than they are today. Some lenders even offered 125% mortgages, giving borrowers access to additional funds to cover moving costs, new furniture or home renovations.
However, lenders tightened their criteria following the 2007/2008 financial crisis, making 125% mortgages a thing of the past. 100% mortgages are still available, but normally only if you have a guarantor or family members willing to use their savings or property as a security.
What is Skipton’s Track Record Mortgage?
Skipton’s Track Record Mortgage is a 100% mortgage designed to help eligible renters buy their first home, even if they don’t have a house deposit.
The Track Record Mortgage can be used to buy homes worth up to £600,000, but the exact amount you can borrow will be based on the amount of rent you pay and your ability to meet Skipton’s full affordability criteria.
No matter how much you borrow, the interest rate will be fixed at 5.49% for the first 5 years. This means that even if interest rates rise or fall during that period, your interest rate will stay the same.
A fixed-rate mortgage can be ideal if you want to know exactly how much your repayments will be for a set period of time. But fixed deals are often more expensive than variable rate mortgages. This is because lenders effectively charge a premium for the protection and reliability offered by a fix.
If you’re able to save a small deposit, you may be able to secure a better interest rate. Opting for a 95% mortgage, for example, could see you access interest rates below 5%.
Read more: How long should I fix my mortgage for?
Am I eligible for Skipton’s Track Record Mortgage?
You might be eligible for the Skipton Track Record Mortgage if:
- Each applicant is a first-time buyer
- Each applicant is aged 21 or above
- You have a deposit of 5% or less
- You have proof of paying 12 months’ rent in a row during the last 18 months
- You have proof of paying all household bills for at least 12 months in a row during the last 18 months
- You’ve not missed payments on debts and credit commitments over the last 6 months
- You meet Skipton’s household-to-household criteria - this means that the same people who have been renting now (and have been for the past 12-months) are the same people applying for the mortgage
You can’t use the Track Record Mortgage alongside other home buying schemes such as Joint Borrower Sole Proprietor or Shared Ownership.
How much can I borrow?
The most an applicant can borrow is £600,000, but that doesn’t mean every applicant will be eligible for a Track Record Mortgage of this size.
You can only borrow the equivalent of (or less than) the amount you pay in rent each month. In other words, if you pay £1,000 a month in rent, your mortgage payments would also need to be £1,000 a month or less.
An applicant paying £1,000 a month in rent could be eligible for a loan of £160,002 if they chose a 25-year mortgage term. If that same applicant wanted to spread their repayments over 35 years instead, they may be able to increase their borrowing potential to £186,442.*
An applicant would need to be spending upwards of £3,200 a month on rent before they’re eligible for the maximum £600,000 mortgage. With this criteria in mind, some renters may find that they’re still unable to get a mortgage big enough for the home they really want.
After checking your maximum borrowing figure based on your rent, we’ll use Skipton’s regular calculator to check your borrowing. Whichever number is lower is what you’ll be able to borrow.
To find out how much you could potentially borrow for your first home, have a play around with our mortgage calculator. It’ll compare thousands of mortgages from hundreds of lenders and even offer tips on how to increase your mortgage size if necessary. We’ll also do all the Skipton calculations for you to show you your maximum budget.
Is a 100% mortgage a good idea?
If you’d like to buy a home but you’re struggling to save a deposit while paying rent, a 100% mortgage could be a good idea.
There are a number of 100% mortgages to choose from and we can help you find the best mortgage, terms and interest rates for you. If you don’t have family support, Skipton’s Track Record Mortgage may be your only option when buying a house with no deposit.
But a 100% mortgage won’t be right for everyone and they’re not without their risks.
One of the biggest risks that comes with 100% mortgages is negative equity. Negative equity happens when a property’s value drops below the outstanding mortgage amount.
Let’s imagine you buy a 100% mortgage on a £400,000 property. If your home’s value drops to £380,000 just a few months later, you’ll owe the bank more than your property is worth.
Whereas if you have a 90% mortgage on a £400,000 property, your home’s value would have to fall by more than 10% - a significant amount - for you to be in negative equity.
The newer your mortgage, the more likely you are to fall into negative equity as a result of falling house prices. This is because in the first few years of your mortgage term, most of your monthly repayments will go towards the interest on your mortgage rather than the capital itself.
Negative equity is a problem that could go away on its own. If you’re happy to stay in the property until its value has recovered (or you’re able to rent it out), you may be able to ride out any fluctuations.
If you want to sell the property, there may be a difference between the amount you make from the sales versus the amount you owe your lender. It’ll be your responsibility to make up the shortfall.
You might also be unable to remortgage the property or switch to a better deal.
In extreme circumstances, your home may be repossessed if you don’t keep up with your repayments.
What are the alternatives to Skipton’s 100% mortgage?
Skipton’s Track Record Mortgage is currently the only 100% mortgage that doesn’t require a guarantor or family help, but there are alternative ways to get on the ladder.
- Dynamic Ownership - no family support needed
Buy a house with up to 5 siblings or friends by combining your individual deposits and contributing to the mortgage together. Each applicant’s contributions will be tracked, meaning you can build your own equity stake in the property. When you sell, the amount you get back will reflect what you put in.
- Deposit Unlock - no family support needed
If you can save a 5% deposit, you may be eligible for a 95% mortgage on a new build property with the Deposit Unlock scheme.
- Armed Forces Help to Buy - no family support needed
If you’re in the Armed Forces, you may be eligible for an interest-free loan which you could use as your deposit. With the Armed Forces Help to Buy scheme, you can borrow up to 50% of your salary to a maximum of £25,000.
- Deposit Boost - involves help from a loved one
A Deposit Boost involves two separate mortgages. The first mortgage is taken out by a homeowning friend or relative and is used to release equity from their property. These funds can then serve as your deposit so you can take out a mortgage of your own.
- Deposit Loan - involves help from a loved one
A Deposit Loan is similar to a Deposit Boost except your family member will lend you a deposit to help you get on the ladder. This can either be as an equity loan, where they will own a percentage of your property, or as an interest-free loan that is repaid when the property is sold.
- Savings as Security - involves help from a loved one
Instead of putting down a traditional deposit, through a Savings as Security mortgage your relative will put 10% of the property’s value in a savings account held by your mortgage lender. They’ll get the money back (plus interest) after a set period of time, providing you’ve kept up with your mortgage payments.
What does household-to-household mean?
According to Skipton’s criteria, household-to-household means that the same people who are renting now (and have been for 12 months in a row) are the same people applying for the mortgage.
So, if you’re applying for a mortgage alone, you must have covered the rent and household expenditure by yourself for 12 consecutive months within the last 18 months.
If you’re applying for a mortgage with one or more others, you’ll need to prove that rent and bills have been made either collectively or by one individual applicant.
You might be eligible even if you and the other applicant(s) have been living in separate properties, but you’ll each need to prove that you’ve covered your entire rental and household expenditure alone for the designated period.
Am I eligible for a Track Record Mortgage if I rent a room in a shared property?
If you currently rent a room in a shared property and you split the rent and bills, you may be eligible for a Track Record Mortgage — but only if you’re applying for a joint mortgage with the other tenants you live with.
Am I eligible for a Track Record Mortgage if I rent with my partner but I’m buying a property by myself?
If you and your partner live together in a rented home but you’re buying a house on your own, you may be eligible for a Track Record Mortgage. You’ll need to prove that you paid the rent and bills by yourself for a period of 12 months within the last 18 months. If you’ve split the rent and bills throughout the tenancy, you won’t be eligible.
Can I buy a new build with a Track Record Mortgage?
You may be able to use the Track Record Mortgage on a new build house but you can’t use it to buy a new build flat.
New build homes often come with a premium. Once a new property has been bought, it loses its ‘newness’ and can sometimes experience a drop in value too. This fall in value is usually only temporary. Most new build properties will appreciate in value over time. But lenders are often reluctant to offer large loans on new build homes due to the risk of negative equity.
*Numbers from the Skipton Track Record Mortgage Calculator
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