Brits are being offered no-deposit 100% mortgage loans

London — Renters in the UK will be able to borrow up to 100% of the property’s value without a surety or deposit under a new mortgage scheme launched by the Skipton Building Society.

Building societies are UK financial institutions that provide banking services to, and are owned by, their members. The new mortgage product is aimed at first-home buyers who are currently renting, with a fixed rate of 5.49 per cent for five years, up to a maximum term of 35 years.

According to the Moneyfacts UK Mortgage Trends Treasury Report, the five-year average rate for all loan-to-value ratios was 5% in March. Buyers typically get a mortgage rate of 5.33 percent with an LTV of 95 percent, but most buyers opt for the lower rate, the report said.

A number of banks, including NatWest, Santander and Nationwide, rolled out 95% mortgages in April 2021 and May 2021 after the UK government announced a new mortgage guarantee scheme encourage High loan-to-value loans are enabling more first-time buyers to enter the real estate ladder post-pandemic.

The new Skipton deal is extensive coverage It is the first time a mortgage lender has offered a 100 per cent mortgage product since 2008, when some building societies were offering rates as high as 125 per cent. Many products were subsequently withdrawn from the market as the country plunged into financial crisis.

In a release, Skipton said it will ensure that each applicant’s monthly mortgage payment does not exceed the average of their rental costs over the past six months.

The offer is only available to first-time buyers and is subject to affordability and the applicant’s credit score, as well as a minimum 12-month history of good rental payments.

Skipton described the move as “a lifeline for tenants… helping them break out of a trapped lease cycle and get on the property ladder for the first time.”

Charlotte Harrison, chief executive of Skipton Home Finance, said the lack of access to the property ladder had “a huge impact on the fabric of our society”.

“We recognize that there is a clear gap in the market for those who have a history of paying rent over time and therefore can demonstrate mortgage affordability,” Harrison said in a release.

According to research conducted by Skipton, 35% of renters are struggling to save due to increased rent costs.

Rita Kohli, managing director of The Mortgage Shop, a mortgage advisory service, said for some borrowers the move could be “exactly what they need”, but there are concerns about launching such products in an environment where home prices are likely to continue to fall .

“(This) means that, as advisors, we need to make sure that clients understand the risks of negative equity very clearly,” Corley said in a research note.

Graham Cox, founder of Self Employed Mortgage Hub, a mortgage advisory service, said in a report that there was a “serious danger” that borrowers were “overextended” with such products.

“The slightest drop in house prices … would leave homeowners in negative equity, where the property is worth less than the mortgage balance,” Cox said. “If your income is down and you need to sell, it’s not a good place to be,” he added road.

Andrew Wishart, senior economist at Capital Economics, told CNBC that stress tests need to be particularly stringent in order to prevent clients from getting into negative equity.

“That would mean the maximum amount people could borrow could be lower than with other mortgages, meaning the gap between the house price buyers are looking to buy and the amount they can borrow is particularly wide,” Wishart said.

There is also the question of whether there are larger structural problems in the UK housing market, with a “severe shortage” of properties available to first-time buyers, Jonathan Long, head of corporate real estate at wealth manager Investec, told CNBC.