Gary Bush, financial adviser at Mortgage Shop, adds: “The re-emergence of 100 per cent mortgages, albeit at the moment with a rather awkward rental history affordability modelling, is great to see. It's hopefully the first step to the UK doing what it does best in the mortgage industry: innovate to get around an obvious problem.
“From the look of the new Skipton deal, I see a great rate and hopefully once tested we'll see some approvals having been achieved.
"We do however think that the lender will need some assistance from the broker community to gain the numbers needed to properly assess and evaluate this scheme.”
Consumer suitability
So who might this type of mortgage suit?
According to Luke Thompson, director at PAB Wealth Management, a 100 per cent mortgage will suit someone who is struggling to raise a deposit and intends to stay in the property they are purchasing for the long term, not for a buyer looking to move within a couple of years.
Meanwhile, Ashley Thomas, director at Magni Finance, says it may work for high earners and if the income multiple is very cautious as it is unlikely that they would have issues paying the mortgage.
Then, if house prices reduce and they have negative equity, they could keep the property for the long term until they increase again as they tend to over the long term.
Nicholas Mendes, mortgage technical manager at John Charcol, agrees.
While 100 per cent mortgage might ring alarms bells, he stresses that the financial industry is not in the same place as it was in 2008. Property values also tend to increase over the long term despite property dips.
Based on Mendes’ calculations, if we took the average rent 12 months ago of £1,006 per month, assuming no increases, this equates to £60,360 over a five-year period in which equity could have built up, reducing the risk for the lender and homeowner of negative equity.
Mendes adds: “While it’s a positive step forward, this isn’t going to be a one fix solution. There is still an element of affordability, the lender will take the lower of either the track record or the affordability calculator, which means the scheme will only benefit those that can raise the amount required for a property in their area.
“While there are 100 per cent LTV products, they require the support of a family member to provide either equity or a deposit that is held in an interest-earning account and released after a certain point.
“This should be seen as a significant milestone and hopefully see other lenders make similar steps towards supporting first-time buyers.”
