Skipton Building Society launched its 100 per cent loan to value (LTV) mortgage product earlier today. The product is on a five-year fixed rate term starting at 5.49 per cent over a maximum term of 35 years.
Danny Belton, head of lender relationships at Legal and General Mortgage Club, said Skipton’s product was a “welcome step in the right direction”.
“A product that supports those with a strong history of rental payments, and those who have paid household bills over a prolonged period of time, is exactly the kind of innovative offering the market needs to help people make the transition from renting to buying.
“Many buyers have already proved their ability to pay high monthly rental payments, and it’s encouraging that a lender is now recognising this in its criteria requirements,” he added.
Brian Murphy, head of lending at Mortgage Advice Bureau, agreed, noting that this could “herald a new era for the property market: one that removes hurdles and creates opportunities”.
“For thousands of first-time buyers who have historically been unable to buy, despite paying rent that could potentially be more than mortgage payments, it unlocks the potential of home ownership and recognises that rental payments have a role to play – something that has long been a sticking point,” he noted.
Murphy continued that for landlords wanting to exit the market due to retirement or the cost of remortgaging it gave them an “opportunity to sell to good, long-term tenants”.
“It’s also set to bring benefits for both buyers and sellers, with reductions in estate agency and legal fees, shorter chains, and a completion day that doesn’t end with a removal lorry still on the drive. It’s this thinking that will drive the market forward and is a positive sign of things to come,” he said.
A back to the future moment?
David Hollingworth at L&C Mortgages said that a 100 per cent LTV mortgage may “feel like something of a back to the future moment” but the financial climate now was different to when they were widely available in the market pre-financial crisis.
“This deal recognises the fact that hard-pressed first-time buyers that have met their rent and household bills over a sustained period of time should demonstrate their ability to meet a mortgage payment lower than their rent, irrespective of the existence of a deposit,” Hollingworth added.
Riz Malik, director at R3 Mortgages, said that this was a “trailblazing initiative” and a “breath of fresh air in the face of today’s economic challenges”.
“It seems the market has been eagerly anticipating a game-changing innovation not only since last September but 2008, and Skipton may have just delivered the masterstroke we’ve all been waiting for.
“Given the substantial risks involved with 100 per cent LTV mortgages, we can only expect that Skipton will be meticulously scrutinising applications to ensure it strikes the right balance between risk and reward,” he noted.
Greeted with cautious optimism
Ross McMillan, owner and mortgage advisor of Blue Fish Mortgage Solutions, said that it had been almost 15 years since the last 100 per cent LTV mortgages were available and their return should be “welcomed and greeted with a sense of cautious optimism as a clear sign of confidence and stability in the banking system and the robustness of the UK property market as a whole”.
“While previous instances of such lending were associated with reckless practices, a more sensible and holistic approach is now regulated for and expected. Of course, we can’t forget the lessons of the past. Smart lending and careful assessment are key to making this work,” he added.
Justin Moy, managing director at EHF Mortgages, said that the move suggest the potential for property prices falling any further in the long term is “relatively small” and the five-year fixed rate term would “smooth out any immediate issues with the longer-term gains typically delivered by property”.
He said that this would be quite a “niche product” and there was other 100 per cent LTV schemes in the market but this gave “some greatly needed confidence to the housing market and is another opportunity to help people get on the property ladder”.
More lenders may follow suit
Craig Fish, director at Lodestone Mortgages and Protection, said that the rate of the product was “decent”, and it would help those who “need it most”, namely those who cannot save a deposit due to high rents.
“I suspect we now may start to see a few more lenders offering similar products, which will be a great stimulus for the lower rungs of the property ladder. Not sure of the effect that this will have on the rental market but suspect that we may see a few more landlords exit the market.
“What the uptake of the product will be like remains to be seen, and I suspect if it proves to be too popular, we may well quickly see the product withdrawn, or tailored to limit exposure,” he noted.
Amit Patel, adviser at Trinity Finance, agreed that this would help Generation Rent get on the ladder, and this would help bridge the gap between renting and buying a home.
“I expect demand for this product will be high and other lenders will be watching this space very closely and may launch a similar offering in the days and weeks ahead,” he said.
Spectre of negative equity still a concern
Graham Cox, founder at Self-EmployedMortgageHub.com, said that he was “amazed” that the Prudential Regulation Authority had given the given the mutual the go-ahead for the product launch.
“It’s like we’ve learnt nothing from the global financial crisis in 2008. I understand the logic of trying to help those who are rent-trapped, and unable to save for a deposit, but to me, it’s addressing the symptom rather than the cause, which is that house prices are too high.
“The grave danger is borrowers will overextend themselves. The slightest fall in house prices, and I believe they’ll fall significantly over the next 12-18 months, will leave homeowners in negative equity, with the property worth less than the mortgage balance. Not a great place to be if your income drops and you need to sell,” he added.
Hollingworth said there would always be concerns with no-deposit product could risk negative equity but the longer-term nature of the product could mitigate that and “if it can help some accelerate the move from renting to home ownership it could be a significant new product”.
Belton said that the industry was “acutely aware” of potential risks but affordability checks were “more robust now” than they were pre-financial crisis.
Ross Lacey, director and chartered financial planner at Fairview Financial Management, added that for lenders who do offer such products then it was key to offer product options that “borrowers can fall back onto at remortgage time”.
He said: “This can provide a safety net to help borrowers avoid being forced to move onto the standard variable rate if they are remortgaging at a time that coincides with being in negative equity.”
