How the deposit-free mortgage has changed since the last one was available to first-time buyers and renters
Skipton Building Society has launched a deposit-free mortgage to help people get on the property ladder - but how is it different to the last one that was available?
In the late noughties, hundreds of thousands of homeowners secured their properties using Northern Rock's 'Together' mortgage, which allowed customers to borrow up to 125 percent of the value of their home.
The deal meant customers could get their homes without a deposit - one of the main obstacles preventing people from getting on the property ladder.
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However, in 2008, Northern Rock scrapped the mortgages after criticism from politicians, who branded the mortgages as 'high risk', especially after Northern Rock had to ask for emergency support from the Bank of England in September 2007.
Skipton has branded its own deposit-free mortgage as an 'industry first', explaining that it's launched the product as a solution for people who 'have a strong history of making rental payments over a period of time and can evidence affordability', but who have a lack of savings for a deposit.
Unlike Northern Rock's product, Skipton's mortgage is available only for first time buyers and has just one fixed-rate option - a 'five-year fixed rate product at 5.49% over a max term of 35 years'.
The building society has laid out a number of criteria for potential customers, meaning it won't be available to just anyone.
Tenants must be 21 and over, and lending is 'subject to affordability and credit score, plus evidence of a minimum of a 12-months good track record rental history'.
Customers can't have any missed payments on debts or credit commitments over the previous six months, and they have to have experience of paying all household bills for at least 12 months in a row during the previous 18 months.
Instead of allowing customers to borrow more than the value of their home, as was the case with Northern Rock, buyers will be limited to a maximum 100 percent loan to value up to £600,000.
After Northern Rock scrapped its Together mortgage in 2008, many customers became what were dubbed 'mortgage prisoners', as they were unable to remortgage because they were unable to meet other lenders’ requirements for new deals.
Four years later, the Financial Services Authority (FSA) and the EU implemented new regulatory requirements on lending practice to avoid another financial crisis like the one in 2008.
Charlotte Harrison, CEO of Home Financing at Skipton, has stressed the building society needs to be 'sensible' with its approach, making sure 'tenants don’t take on more than they can realistically afford'.
“We know this product will not be able to help everyone and is only part of the solution for this group of people, but as a lender, we’re taking a stand to offer innovation in this space to help turn generation rent into generation buy," Harrison added.
The CEO insisted the mortgage 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'.
"In building our mortgage product with these challenges at the centre, we’re ensuring considerations around negative equity have been fully taken into account," she added.
Emily Brown