Zero deposit mortgages - good or bad?

Skipton Building Society's 100% mortgage without having to cough up a deposit may sound appealing on the face of it. Unfortunately, you still can't just waltz into a bank and demand a 100% mortgage just yet. You will need to meet income criteria and show that you can afford to pay the loan back. The rates and fees on these products will no doubt be skyrocketing given the risks Skipton will be taking on this product. But hey, at least you don't need a guarantor on this one. The lender also seems to be bullish on the future of the British housing market, which is reassuring to hear as a portfolio landlord and developer. But let's face it, the real problem here isn't demand, it's the supply of housing. We just don't have enough houses to go around, thanks to the consistent NIMBY behaviour and the kangaroo court of councillors that sit on planning committees, alongside bureaucratic planning laws. The real problem that needs solving is that rather than demand side subsidisation.

With rents rising and chipping away at first time buyers disposable income - it is now harder than ever for them to save a deposit. With the removal of help to buy, first time buyers are crying out for a leg up on to the ladder. Removing the need for a deposit would definitely open the door for a lot of first time buyers, and I do think with the right advice given by a quality broker it will be a great option. The main risk of negative equity will always be focussed on but as long as this is highlighted correctly and the client is not planning to move within the early years of living in the property, there is a strong argument to say that those buying with no deposit and actually paying their own mortgage every month are ultimately in a better position than those currently renting and paying their landlords mortgage, whilst not building up equity within their own asset. 100% lending has been available on shared ownership for quite some time - so there is no reason it can't work.

100% mortgages are music to our ears here at Mortgage Shop. As a company, we have had access to two lenders offering 100% mortgages for shared-ownership property transactions for the past 10 years, we have the proof at hand of the benefit that this kind of borrowing can have for first-time buyers. It's a big signal that the brains at Skipton, for all purchases, now agree with us that, although we could be in a corrective period for property values, the medium to long-term outlook is only one way, and that's upwards. It's a clear fact that with a shortage of properties to purchase still being the case across the UK, the price of these properties will increase in time, alleviating the potential risk to negative equity occurring. Obviously, Skipton could possibly ramp up its surveyor requirements for the property valuations for these 0% deposit schemes to check that the property stock being included isn't low quality and not in need of substantial improvement for a potential resale.

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.

100% mortgages were vilified after the financial crisis, as was interest only. As with all lending there are risks and the skill is the management of those risks. From a consumer stance the only real risk is negative equity upon resale, if the mortgage remains affordable then the consumer controls the time of resale and can reduce this risk. From a lender point the only risk is loss following forced sale, so, if the loan remains affordable this risk is mitigated. Bring on 100% mortgages but lets maintain a reasonable credit perspective.

The average age of a FTB is 33 years old and this is slowly creeping up as house prices increase and the deposits required follow suit. With average house price in uk being around £256,000 and this would require £12800 deposit in most instances, the average savings for under 35 in the UK is around £3600. 100% mortgages will be a massive opportunity for people to buy a property. The bank crisis in 2008 ended 100% mortgages and I can understand the risk, but lending money is always a risk so as long as skipton and whatever lenders follow suit have the saftey precautions to statisfy the FCA then i think it is a great idea.
I imagine it will come with certain rules, minimum income, 5 year fixed rate, high credit score so it wont be for everyone, but if it can help a small few get on the ladder then it is job well done.

The prospect of aiding the younger generation in achieving homeownership rather than renting is a welcome development. Barclays has long championed this cause through its Family Springboard offering, and it is encouraging to see another lender following suit. With any luck, this move will encourage additional lenders to enter the market and provide 100% mortgages, expanding opportunities for aspiring homeowners.

For the right type of client, I do not see a major problem from a client's perspective. Imagine two junior doctors, with clear career progression, buying together a modestly priced house, which is easily affordable, less than the rent they are currently paying and not taking them to their lending limits. I can't think of many negatives. The risk seems to all lie with the lender.

Given the biggest challenge many first-time buyers face is raising a deposit, low or zero-deposit mortgages may be due a comeback. While certainly not without risk, well-capitalised instutitions offering sensible products backed by strict underwriting could be a welcome addition to the market.

I think it's a great idea to have no deposit mortgages, it helps renters that struggle saving a deposit (because they are paying all their money out in rent) and it adds some well needed enhtusiasm in to the market place. Yes, there is a risk that buyers could be left in negative equity if prices take a turn for the worse but they shouldn't dip too drastically if at all and we all need to take some risks in life. I think there should be more of these no deposit mortgages around especially now while things are particularly tough on tenants with rising rents.

Generally, this is not a good idea unless you have a guarantor or a high earner with a strict income criteria.