First-time buyers will soon be able to get a 100% mortgage without a deposit. But is it affordable?

Want to buy a home but don’t have a deposit? A new 100 per cent mortgage to help renters get on the housing ladder could soon be available, but experts have warned of the risks associated with taking on large amounts of debt.

Skipton Building Society’s track record mortgage will only be available to first-time buyers, allowing them to get a mortgage on a property without a deposit, paying a fixed rate of 5.49 per cent interest over five years.

The building society said the mortgage loan – the first 100 per cent mortgage offered since the 2008 financial crash, caused mainly by banks lending large amounts of money to people who could not pay it back – is a direct response to the affordability crisis in the housing market.

Research from Skipton found eight in 10 tenants feel ‘trapped’ in a rental cycle with renters struggling to save for a deposit while paying record-high rents and trying to keep up with house prices that have surged in recent years. 

“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,” said Charlotte Harrison, chief executive of home financing at Skipton.

“We know there isn’t one quick solution to addressing this huge societal challenge of tenants being trapped in renting cycles, with rents escalating faster than mortgage payments and the increasing costs of living, but doing nothing isn’t going to solve this UK housing issue.”

Harrison added that Skipton would act as a responsible lender and promised monthly repayments would not top what renters are currently paying every month.

However, the building society found 35 per cent of the renters it surveyed were already struggling to save due to increasing rent.

Tenants also told Skipton the cost of living crisis was the main setback when it came to saving for a deposit, with 41 per cent stating house prices in their area have moved homeownership out of reach.

Concerns remain over the knock-on effects of offering a 100 per cent mortgage. Before the 2008 financial crash, 100 per cent mortgages were widely available but often given to people with no income, no job and no assets. These so-called “ninja” loans were repackaged by banks and sold to other lenders, meaning dozens of financial institutions were affected when the loans could not be repaid. They were removed from the market as lenders moved away from risky lending.

Northern Rock, one of the lenders hit hardest by the 2008 crash, was offering mortgages up to 125 per cent of the value of a home when it was nationalised after getting into financial trouble during the crisis.

Simon Bath, chief executive and founder of property tech platform iPlace Global, said the return of 100 per cent mortgages will spark memories of the dangers of saddling home buyers with large debts.

“Whilst more support is needed for generation rent, I remain wary that interest levels are higher on this mortgage deal which will make it unaffordable for some,” said Bath.

“It’s also important to remember that we saw a rise in riskier mortgages with a high loan-to-value more than a decade ago which was a root cause of the 2008 financial crash. However, as long as affordability tests are stringent, this may provide many in generation rent with a much-needed avenue to finally escape onto the property ladder.”

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Nigel Purves, co-founder and chief executive of alternative lender Wayhome, said there’s a “very real risk” of buyers falling into negative equity if property values start to fall.

Purves added: “Given the unsettled market conditions seen in recent months, such a change in the market is far from out of the question and could see buyers lumbered with their property and unable to remortgage until such a time that market values recover.”

While no guarantor would be required, renters must pass affordability and credit checks and show evidence of paying rent on time over a 12-month period to qualify for the mortgage.

That could prove a stumbling block for many of the households looking to get on the housing ladder – new research from Which? found an estimated 700,000 households missed a housing payment in the last month.

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Just over 5 per cent of renters surveyed by the consumer champion said they had missed a rent payment recently – higher than the three per cent of homeowners who missed a mortgage payment.

Overall, Which? Estimated that more than two million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill in April as the cost of living crisis continued to hit families hard.

Rocio Concha, Which? director of policy and advocacy, said: “It’s very worrying that so many households are missing housing payments. We’d encourage anyone who’s struggling to seek free debt advice and reach out to their mortgage provider or landlord for help.”

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