No Deposit Mortgage Now Available – Is It Worth It?
Skipton Building Society has introduced a groundbreaking no-deposit mortgage option for first-time buyers, enabling them to secure a 100% loan-to-value (LTV) mortgage.
Typically, first-time buyers are required to provide a minimum deposit of 5% of the property’s value. Skipton’s no-deposit mortgage, however, offers a unique opportunity, but it comes with specific eligibility criteria and considerations. Here’s a comprehensive look at what this mortgage entails:
Exploring the eligibility requirements for Skipton Building Society’s innovative no-deposit mortgage is essential for first-time buyers considering this unique opportunity. To help you make an informed decision about whether this mortgage is worth pursuing, we delve into the specific criteria applicants must meet. From financial responsibility to income multipliers, we’ll break down each requirement, ensuring you have a clear understanding of the eligibility prerequisites. Here are the key eligibility components of this no-deposit mortgage offer.
- First-Time Buyers Only:
This mortgage is exclusively available to first-time buyers, making it a valuable option for those entering the property market.
- Proven Financial Responsibility:
Applicants need to demonstrate a history of timely payments for rent and bills over the last 12 to 18 months. This evidence showcases responsible financial behaviour.
- Mortgage Payments vs. Historic Rent:
The mortgage repayments must not exceed the historic rent payments. This ensures that borrowers can comfortably manage their new mortgage commitments.
- Income Multiplier:
Borrowers can access up to 4.5 times their annual income, providing greater flexibility in property selection.
- Maximum Loan Amount:
The mortgage is available for properties valued up to £600,000.
- Interest Rate and Mortgage Type:
Skipton’s no-deposit mortgage is offered as a 5-year fixed-rate mortgage at an interest rate of 5.89%. Borrowers should consider the implications of this fixed-rate structure.
- Age Requirement:
Applicants must be at least 21 years old to be eligible for this mortgage.
- Partner Eligibility:
Joint applications with a partner are allowed.
- New Build Properties:
Newly built flats are not eligible for this mortgage.
Calculating Borrowing Capacity:
The amount you can borrow with a no-deposit mortgage is subject to specific calculations:
- Borrowing is capped based on your average monthly rent payments over the last 6 months.
- Borrowing is also limited by your income, with a maximum of 4.5 times your salary. Joint applications can combine both partners’ incomes.
- For instance, if your average rent over the last 6 months has been £1,000, and your annual income is at least £41,000, you may qualify for a mortgage of just over £185,000. This calculation is based on a 35-year mortgage term.
- Different rent and income scenarios result in varying borrowing capacities, providing flexibility to suit individual circumstances.
To apply for a no-deposit mortgage, you will need to provide specific documents:
- 12 months of bank statements as proof of rent payments.
- A letter from your letting agent confirming payments if you pay rent in cash.
- Standard mortgage application documentation, including proof of identification (e.g., driver’s license and passport).
Is a No Deposit Mortgage a Wise Choice?
While Skipton’s no-deposit mortgage offers an enticing opportunity for first-time buyers, some considerations should be kept in mind:
The Bank of England’s Governor, Andrew Bailey, has cautioned both lenders and borrowers about 100% LTV borrowing. The concern is that borrowers might face challenges when their mortgage term ends, as they may not have reduced the principal amount sufficiently to qualify for a standard remortgage with a lower LTV. However, today’s lending environment has more regulations in place than during previous financial crises.
If a 0% deposit is not a suitable option, consider a 5% deposit mortgage, which provides additional flexibility. The larger the deposit you can contribute, the more competitive your mortgage terms are likely to be. Consulting with a mortgage broker can help you identify the best-suited mortgage product based on your financial situation.
Skipton Building Society’s no-deposit mortgage is a groundbreaking offering for first-time buyers. While it presents an excellent opportunity to enter the property market with no upfront deposit, borrowers should carefully assess their financial situation and the implications of a fixed-rate mortgage. Exploring alternatives and seeking advice from mortgage experts can help make an informed decision regarding the most suitable mortgage