100% mortgages possibly returning

[salto]

I was reading an article before which said Skipton Building Society are looking to bring back 100% mortgages. It’s currently awaiting approval but is thought to be designed to allow people who are currently renting and can evidence rental payments to buy a home without a deposit. It will be subject to strict criteria and good credit scores.

This would benefit so many if it happened, including us. We currently have a 5% deposit but getting to 10% will be hard considering how high house prices are at the moment. It’s also nice to think we could keep this deposit as a safety net or rainy day fund.

Other than the risk of negative equity what are you thoughts?

I agree that renters who can evidence that they have been paying as much or more than a mortgage shouldn't be trapped and should be able to get 100%. Not all renters would be able to do that certainly not in all areas.

In one street in my area we have HA flats and private flats. The two bed HA flat is £450 per month. The two bed private flats start at £1400 a month and the cheapest within a few miles is £1200. The cheapest 2 bed flat to buy within 15 miles is £290k. Without a deposit the repayments could the same as the higher rent if over a long term. That would be preferable to me than being stuck renting at that price.

If you go from paying more rent to less mortgage you have the ability to save for repairs etc right there.

From memory, in just under 6 years on normal 25 year capital repayment, anyone will have paid down 10% of the capital. Could be 5 or 7 years, but it's in the region. If rent is more than mortgage and initial payments are adjusted, then a 30 year mortgage can be identical to 25 year except with the first 5 years set up to pay down the 10% deposit. At that 5 year mark, the renter is EXACTLY equal to a first time buyer for both capital and number of payment years. The differences are that they have had a stable home for kids schools, work etc, they are even less risky because they have 5 years experience of owning, and they weren't affected by property price increases in the period so may have made additional gains.

Renters in some areas, including mine, are paying a lot more than equivalent mortgage yet without the security. If the rent has gone on long enough at a higher rate, the buyer has good credit and the buyer is young enough to go for 30 years, then I would say yes it is VERY fair to allow the mortgage, in my opinion. The additional risk for both buyer and lender is only for that first 5 years, which is pretty easy to quantify based on market conditions.

And the thousands saved each year could pay for repairs/ family holiday/ pay the mortgage down faster and fixing means no worries about rent increase notifications or your LL wanting to sell or your LL not wanting to maintain the property.

At a time when house prices appear to be falling, and interest rates likely to go up further, 100% mortgages are probably not a good idea.
Rather than increase supply to meet demand it's just another way to keep the market churning in my eyes.
Clearly the current rental situation is untenable in the long run, so a long term strategy is needed to increase supply of affordable rental property.

I don’t know what’s up with Skipton at the moment but their rates are not at all competitive. Why aren’t they competing for conventional, lower risk business rather than promoting 100% mortgages in a falling market?
Weird, I’d steer well clear.

I think it very much depends on your situation. We bought our first house with a 100% mortgage (think it was actually more like 108%), sold it on about 10 years later for 3x what we paid for it, so it worked out well for us. If I recall interest rates were around 6% and that was considered low. However the maximum mortgage you could get was 3 x joint salary so you couldn't borrow huge amounts of money (unless you earned huge amounts!) so houseprices were lower.

You've missed out that rents are not going down either, they are going up too, and that's a key factor. People are paying more per month to sign up to a 2 year lease, but then they have all the risk of even higher rent in 2 years. If they can afford the mortgage on a 5 year fix and factor that in, then they can put themselves exactly into the position of a first time buyer with 10% deposit, in 5 years time. Except they've had use of the home and don't suffer any other increases in property prices in the intervening 5 years.

I think the issue might be affording the stress test where the lenders make you prove you could afford a 4 pet cent rate increase. We know from the number of posters complaining on MN about mortgage increases people can't always afford them.

Ohhh this is interesting to read. We pay 2k a month on a 3 bed semi. I would absolutely love to get a property I know I won't have to move out of after a year! It gets exhausting moving family and work each time. And as we've never once missed a payment in 13 years hopefully that would help too.

We have just struggled to save for the deposit. Someone spoke about maintenance on rentals not being something tenants are used to paying. Unfortunately this hasn't been the case in any of our 5 rentals. Each time we've had to redecorate and new carpets/ flooring. I have family in the building/glazing and pluming trade where they've all helped out. I've re turfed a garden. I'd love to do stuff to my own house. Or I just wish that I could find somewhere to rent that is looked after and in great condition!l already. Then we wouldn't have to spend more money on something that's not ours. Ohhh the actual dream 😊.

I had a 100% mortgage and no bank of mum and dad. Without that 100% mortgage to get us going we wouldn’t be on the ladder where we are not. We chose a very inexpensive property and didn’t stretch ourselves in terms of salary multiples and we took a 5 year fix. By the time the five years were up we had a good chunk for a deposit on a bigger house when we sold and moved. We sold for slightly less than we bought for so that new deposit was all from our mortgage payments and not from house price rises. I think in similar circumstances 100% mortgages are a good idea but should be limited to lower salary multiples perhaps.

This. Launched some fixes yesterday priced a good chunk higher than others in the same LTV bracket but are happy to chuck out 100% loans....

100% loans are but necessarily higher risk for the lender. If you read the link I put up on page 1 ( from Which ) it explains that 100% mortgages will require a good credit score and a guarantor

Not necessarily (not but necessarily!)

Good point.
We spend hundreds of pounds a month on tweaking things in our house, popping to ScrewFix for bits that we need, fixing or replacing things, buying plants for the garden etc etc. It never ends.

I think the fact renters have a proven track record of affordability is a massive plus point, it’s ignored by lenders. I’ve paid over £1000 rent for over 15 years. We are now up to £1700 a month, although the house is smaller. ironically it’s the affordability we fall down on when applying for mortgages, despite the monthly payment being £700 a month less than we pay now and have been paying for some time.

the 100% and mortgage prisoner part is the issue. If they can pull it off it will help a lot of families be able to have a home, a future and for people to feel part of a community.

Personally I would rather they bought back 'self declare ' up to 90% . If you have several years proof of income plus a positive rental record. An awful lot of self employed without huge deposits are finding it hard to buy. We actually could afford £2500 a month- but can't afford £100k deposits!

Part of that renters currently do (we’ve always maintained ours at our cost) part of that is because you want to make it a home and that money comes not from savings but “wants” and you may cut back on something else E.g holiday vs climbing frame in the garden

This may be harder than you think.
Assuming 10 years of 100% (optimistic) paid occupancy at £700 pcm, total income £84,000
All rental income is taxable, no relief for mortgage payments, so 20% tax (assuming your total income including your day job doesn't go over into the next tax bracket) brings income down to £63k.
Your interest payments on a £60k mortgage at 5% (optimistic but good for rough estimates) at £3k per year so £30k over 10 years leaves you with £33k.
Your mortgage is still £60k, you've made £33k, but will need to budget around £10k to replace boiler within that 10 year period, probably a couple of windows and carpets, insure the building, gas safety checks and at least one tenant blocking the loo/accidentally pulling sink off the wall/asking you to fit new gates and hence to keep the kids safe, you'll do repairs and decorating... Cheaper if you're prepared to spend your evenings and weekends and holidays doing lots of those jobs yourself. But you don't get paid for doing it.
And when you sell the place to cover the mortgage and get your money out (and you'll have seen how difficult it can be for landlord and tenants when the landlord need to sell up, never and mercy on MN), you'll have to pay capital gains tax. Assuming the property hasn't gone down in value...
So you definitely do get some income, but it would probably take more like 25 years to pay off the mortgage...

Another factor is a 100% mortgage is a big risk for a lender so I’d expect the rates to be higher than anything you are seeing at present, it might not be as affordable as some of you think. Depends on the local market absolutely how much of a risk it is I would say.

I think it's an amazing idea. For those already paying more in private rent than they would for a mortgage, it's brilliant!

And from what I can find, they haven't actually specified they would be doing 100%? Or definitely not for everyone? Like PPs have said, even 5% would be a game changer.

As for going bust, SBS aren't stupid. They're gonna have safeguards in place

It isn't a big risk for the lender as they are guarantor mortgages so a buyer's family effectively uses their savings or property as security for the mortgage.

https://www.which.co.uk/money/mortgages-and-property/mortgages/types-of-mortgage/100-mortgages-aKHLU9B2Mhov

This is from October last year. It isn't relevant to the SBS suggestion is it?

They haven't suggested it would be a guarantor mortgage or anything similar AFAIK?

This. If you can’t afford to save for 5% deposit, chances are you can’t afford to maintain the property.
Most tenants (we were!) are completely oblivious to how much this costs - building insurance, repainting every 5-10y, roof and gutters maintenance, boiler maintenance… and this not even taking into account the one off spends (new boiler, emergency plumber/electrician, smashed window to replace…)

@BrimFullOfAsher - what does SBS stand for?

Oh I've just realised, Skipton BS (duh!)

Well that one hasn't been approved yet so we don't know what safeguards they will put in place. But there are other lenders in the market who are already offering 100% mortgages and they have safeguards in the sense of requiring a good credit rating and family guarantors.

I imagine that if Skipton don't require a guarantor, they will have robust processes to check they are only lending to people who can evidence that they have paid rent on time for years with no gaps and a proven regular income.