Bank of England issues warning over new deposit-free mortgages
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The Bank of England has issued a warning over the new deposit-free mortgage scheme.
The deposit-free mortgage, which is aimed at renters and first-time buyers, has been launched after a 'gap in the market' was recognised.
However, buyers and banks alike have now been urged be to be 'very careful' with the new 100 percent mortgages that require no deposit whatsoever due to certain hidden risks.
Skipton Building Society has launched the UK’s first 100 percent LTV (Loan to Value) mortgage for renters.
Effectively, this means that people currently 'trapped' in the rent cycle will finally be able to get on the property ladder without having to fork out a fortune for a house deposit.
Dubbed the 'Track Record Mortgage', the deal allows tenants who can provide proof of affordability for a mortgage to borrow up to 100 percent of a property value.
And the requirements?
To be accepted, you must be aged 21 or above, have a good credit score and be able to provide evidence of 12 months' 'good track record rental history'.
The building society says this new scheme help 'take away the dependency on the Bank of Mum and Dad or guarantors'.
Charlotte Harrison, CEO of Home Financing at Skipton, said: "We need to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home.
"People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our society. With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people get onto the property ladder."
Harrison continued: "We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time and can evidence affordability of a mortgage – but there is currently no solution for them to buy a property due to lack of savings or access to family wealth."
Because of this, the building society have taken an active approve to 're-think' the 'massive barriers' attached to home ownership in a hopes to find a solution to a 'massive social problem'.
"This is why we’re introducing our Track Record Mortgage. It has been carefully created with the challenges generation rent is facing in mind, together with the potential risks and challenges they may encounter in the future too," the CEO concluded.
However, since then, such schemes have received some criticism.
Governor of the Bank of England, Andrew Bailey, has said that 'quite a few problems' could potentially arise from deposit-free mortgages.
The Bank claims that such deals have been seen as riskier loans, which eventually went on to be one of the contributing factors behind the financial crash of 2008.
"I think we have to watch it very carefully," Bailey told the BBC when asked about the return of new deposit-free mortgage deals.
The governor then went on to say that all the risks attached to the '100 percent deals' need to be thoroughly considered by both lenders and borrowers.
He added: "I'm not going to say no to 100 percent mortgages but both lenders and borrowers have to be very careful about this.
"You can get quite a few problems. People can often get stuck with mortgages for a long period of time which they can't trade out of."
And the Money Saving Expert, Martin Lewis, has also urged first-time buyers to enter with caution when it comes the new deposit-free mortgages on the market.
"I've campaigned for years to try and help mortgage prisoners locked in at hideous unaffordable rates, and the spectre of 100 percent mortgages returning leaves me with mixed feelings," Lewis said.
"Before the 2007 financial crash, banks would simply throw mortgage loans out to anyone walking past a branch window; now we need to be more careful."
