Mortgage without a deposit in the UK? From May 2023 it's possible!

Yesterday we received news of a product that is sure to shake up the UK mortgage market. Skipton Building Society’s no deposit mortgage has been launched. Who is the offer aimed at and where is the catch?

Why is a mortgage without a deposit so interesting?

Until a few months ago, we wrote on our blog about the minimum deposit, which until yesterday was always a minimum of 5% of the value of the property being purchased. Such a requirement had been in place for many years and was justified by the potential cost of debt enforcement by the bank if the buyer was unable to repay their mortgage.

At the average property price in the UK, a 5% deposit means around £15,000 in cash to be prepared before you start your application. Added to this are the costs of the application, broker services and generating credit reports. In practice, you’d need to prepare several or even £20,000 to buy the average house. Of course, there are cheaper properties, but the amount of deposit has always been substantial.

The emergence of a mortgage with no deposit is an opportunity for many people who do not have savings but whose earnings are sufficient to make regular repayments. What criteria does the bank set?

Skipton 100% LTV mortgage - requirements

Due to the higher risk, Skipton building society has set quite strict criteria for granting these favourable mortgages. Among the most important of these are:

• First time buyer status for each applicant

• Minimum age of each applicant of 21 years

• The maximum deposit must not exceed 5% of the purchase price

• None of the applicants must have any negative events in their credit history in the last 6 months

• The maximum amount of the mortgage is £600,000

• The mortgage cannot be used to finance a new property. You are limited to the secondary market.

The product itself is offered primarily to people who are currently renting a property and whose rent is increasing. For this reason, the mortgage instalments cannot exceed the average rent you have been paying for the last 6 months. It is also worth noting that a joint mortgage application is only possible if all applicants have jointly rented the same property for the last 12 months.

A full list of criteria can be found on the Skipton Bulding Society website.

Terms of a mortgage with no deposit

Due to the restriction on instalments (they cannot be higher than your current rent), the mortgage repayment is bound to be quite long. For this reason, the maximum term is as long as 35 years. For some this will be an advantage, for others a disadvantage, but it is worth remembering that you can always do a remortgage after a few years. The 35-year period does not, however, apply to the interest rate. Although it is fixed, it lasts for 5 years. It is therefore a typical example of a fixed rate mortgage.

The bank has also set a maximum mortgage to earnings ratio of 4.49 annual income (LTI). However, this does not mean that if you earn £50,000 a year you will be able to borrow £224,500. Your borrowing capacity is lower, mainly because of the expenses you have to spend on your living expenses. The LTI ratio of 4.49 is within the standard for the UK market and Skipton has not made any revolutions in this regard. The maximum number of people who can apply for a mortgage is also standard. This is a maximum of four applicants.

Is it worth applying for a mortgage with no contribution?

If you don’t have a lot of savings, but your rising rent is motivating you to move more quickly from the property you currently live in, our news today has certainly got you very interested. We have to openly admit that a mortgage with no deposit will be quite a bargain for many of our customers, after all it may seem that literally everyone who wants one will get one…

Unfortunately, the reality may be quite different. First of all, a mortgage without a deposit is a huge risk for the bank, because in a situation where the new homeowner stops making the instalments after a few months, the lender will suffer a loss, resulting from the high costs of selling the house and the court procedures. In practice, this means that your documents will be very carefully scrutinised for any negative reasons to grant you a mortgage. When applying, you must ensure that you have not been in arrears on any repayments for a long time, that you have the highest possible credit score and that your income is as high and stable as possible.

It is not worth applying for such a mortgage if you know from talking to your broker that your chances of obtaining it are not very good. Taking such a risk not only incurs costs, but also lowers your credit score, making the dream of owning your own home even further away from you.

Summary

Wondering if a mortgage with no deposit is possible for you? There is no better way to find out than by talking to a broker! Admittedly, we won’t give you a guarantee that your application will be approved, but we’ll make sure your chances are as good as possible.

Don’t wait, book a free, no-obligation consultation today and let us take care of your finances!