A deposit-free mortgage scheme instigated by lender Skipton Building Society, specifically aimed at those who rent, has launched. What may seem like a catch, is actually a progressive initiative to help those who are currently stuck renting to get on the property ladder.
Although some no-deposit deals already exist, they require financial backing from family or friends. With this scheme, all they require is 12 months of on-time rental payments and a good credit history- no guarantor is needed.
To outline the new mortgage offer, we’ve asked Gemma Lawson, Property Finance Specialist to explain in further detail what the proposal means, and how to check if you’re eligible.
Over to Gemma…
With the increase in house prices, interest rates and cost of living, the ability for renters to save for house deposits has been hugely impacted over the last few years.
Skipton have bridged the gap for renters who have a strong history of maintaining rental payments, bills and day to day living costs but may not have the surplus cash available every month to save for a deposit.
The withdrawal of “Help to Buy” Mortgage schemes has removed some options for first time buyers looking to get their foot on the ladder. The introduction of these types of products into the market will provide this helping hand to assist people in making their home-owner dreams come true, and comes as a positive movement from a high street lender to allow the housing market to move forward.
Whilst no deposit is needed upfront, which helps to pave the way for renters, it’s important to be aware of the interest rates. At, 5.49% the interest rate is more expensive than the average five-year fix of 5%.
Criteria:
In order to be considered for the scheme, each applicant has to be a first time buyer, and over the age of 21. If an applicant already has a deposit saved, they can still use this to contribute towards the sale, but it must be less than 5% of the purchase price.
Its paramount that no payments on either direct debits, like rent, or credit card commitments have been missed in the last 6 months. Applicants are able to borrow up to £600,000, as long as they also meet the household-to-household criteria which is;
- You’re not looking to buy a new build flat
- You have proof of having paid rent for at least 12 months in a row, within the last 18 months
- You have 12 months’ experience paying all household bills within the last 18 months
How to check how much you can borrow
There are two calculators that your mortgage broker will need to complete on your behalf to check your affordability:
Track Record Calculator;
This will give an initial indication of how much you might be able to borrow based on your average rental payments over the last 6 months.
Affordability Calculator;
This will give a more detailed view of your situation, and how much you could potentially borrow based on current income and outgoings.
The maximum you may be able to borrow will be whichever amount is lower – the loan amount based on the Track Record Calculator, or the loan amount through the Affordability Calculator.
Example:
Amount from Track Record Calculator = £250,000
Amount from Affordability Calculator = £300,000
The maximum you could borrow is £250,000 as this is the lower value.
The maximum loan must be determined before they move onto the decision in principle (DIP), to make sure the DIP they are given is accurate and based on the correct value.
If the process isn’t followed to determine the lower value, you could be offered a lower maximum loan at full mortgage application.
What happens if I miss a payment?
Like all mortgage repayments, there are consequences if they are missed. A shortfall equivalent to two or more months’ repayments means you are officially in arrears.
Your lender will then consider any requests about changing how you pay, perhaps with lower repayments for a short period, to ensure you are treated fairly.
Any arrangement you come to will be reflected on your credit file – affecting your ability to borrow money in the future.
We are here to help
At Signature Funding Solutions we have helped clients with an array of mortgage applications in various circumstances. If you are currently renting, and think this scheme could help you get on the property ladder, we are here to help. To speak to one of our expert advisors about your situation, you can get in touch here.
