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Deposit free mortgages to return

Journalist: Jake Carter, Mortgage Introducer

ended 24. April 2023

Skipton Building Society plans to launch a new product that would allow borrowers to bypass standard deposit requirements by using their rental payment history. 

How will the return of deposit free mortgages impact the market?

Do you believe this is a good idea? If so, why? If not, why?

Do you expect other lenders to follow suit? 

5 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Basing mortgage availability to first time buyers on affordability and discipline to manage regular payments is a welcome initiative and there will be countless potential new borrowers who cannot save a deposit who will welcome this news. In practice, the rates of these loans will be higher as lenders protect the risk of negative equity and this could be counterproductive by making the loans unaffordable for the very same people they are targeted at helping.
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Elliott Culley
Director at Switch Mortgage Finance
There is currently a gaping hole in the support options available to first-time buyers since the help-to-buy scheme was withdrawn. Lots of would-be buyers often state that a deposit is the one thing stopping them from getting a mortgage, with rents usually higher than mortgage payments. The Skipton option will provide a solution to this problem and will make homeownership a possibility for many that otherwise would not have had the opportunity. However, there are certain risks involved, such as negative equity, which they will need to consider and try to negate with this product. The end product will likely have a few hoops for first-time buyers to jump through, but it would be a product welcomed by many. Other lenders are likely to follow if the product ends up being a success.
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Steven Morris
Advising Director at Advantage Financial Solutions
Full details are yet to be announced, however my gut tells me that this will simply be a mortgage that allows a land lord discount as deposit. For example if a property is worth £100k, but the landlord is willing to sell for £95k, no deposit is required, but the lender is taking on a 95% LTV mortgage. Whilst we are at it, 100% mortgages never went away, they just took on different forms. Kent Reliance offer shared ownerhip mortgages with no deposit. Lenders like Buckinghamshire (and others) offer 100% mortgages, but where an additional charge is placed against a currently mortgage free, family members home. Sorry, had to get that in as the "100% mortgages aren't possible' claim is technically wrong and bugs me.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Saving for a deposit is the single biggest barrier for the majority of first-time buyers, so a product that gets around that issue should be welcomed and applauded. I purchased my own first home with a 100% mortgage and there is no way I could have done so without it. Sadly, following the Northern Rock collapse, they all got tarred with the same brush, which is a shame as many only lent up to 100% and not up to 120% Northern Rock did. The biggest issue with this type of borrowing is that you need to be very careful about who you lend to, the credit score should be, quite rightly, tight with only those able to demonstrate good financial management making the grade. A lot is often made of the risk of borrowers going into negative equity with any form of 100% mortgage, which is a risk, but not materially too much greater than those with a 5% or even 10% deposit.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
A 100% mortgage will most definitely be a welcome sight for first time buyers who are struggling now more than ever to save for a deposit amongst the cost of living crisis. For those that remember the troubles in 2008 however will likely have a very different view on this. 100% mortgages sound great on paper but when property prices drop it puts the borrowers in negative equity and if we look at predictions we are due to see falling property prices so it feels like this product could be set up to fail. I think this could be a very good idea but will benefit from waiting a while longer until the economy settles and the housing market is on the rise again.