The announcement of a new deposit-free mortgage on the table for renters and first-time buyers will have sounded like great news for many, but what does it actually mean? And what do you need to do to get one?
Getting onto the property ladder is hardly the easiest feat these days – not just because of the housing affordability crisis, but also because spiralling rent prices mean many tenants simply can’t ever save up enough cash to put down a deposit.
In fact, new research from Skipton Building Society found that eight in 10 tenants felt 'trapped' in the rental cycle while paying rental costs that are higher than a mortgage.
Meanwhile, house prices for first-time buyers have also risen by an average of 18 percent in the last two years - an increase of £39,680 - with more than one in three (35 percent) struggling to save due to increased rent.
What is a deposit-free mortgage?
In the simplest terms, the mortgage deal from Skipton will allow those renting to access the property ladder without a house deposit.
Known as the 'Track Record Mortgage', the deal lets tenants who can provide evidence of affordability for a mortgage borrow up to 100 percent of a property value.
Charlotte Harrison, CEO of Home Financing at Skipton, said: “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.
"In building our mortgage product with these challenges at the centre we’re ensuring considerations around negative equity have been fully taken into account.”
How do I get one?
Available to people aged 21 and above, the five-year fixed rate mortgage is exclusively for first-time buyer purchases only.
Tenants required to provide evidence they can afford a mortgage before borrowing, meaning the deal is subject to a credit score and proof of 12 months’ ‘good track record rental history’.
There’s no need for a guarantor, either, as the company says the deposit-free mortgage is designed to ‘take away the dependency on the Bank of Mum and Dad’.
What’s the catch?
With an interest rate of 5.49 percent over a maximum term of 35 years, it’s slightly more expensive than the average five-year five percent rate.
One campaign group has also warned that, while the deal could help buyers, the lack of affordable houses remains a huge obstacle for those trying to get onto the property ladder.
Generation Rent, which campaigns for the rights of private renters, said the shortage of budget-friendly properties for first-time buyers is still a huge issue, with Will Barber Taylor from the group telling the BBC: "It's not necessarily going to help all the people who are looking to buy a first-time home if there aren't more houses available to buy.
But, he added: “It would need to be in combination with other factors to make it effective.”
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Topics: UK News