Have you heard the news? 100% mortgages are back

A game changer for tenants looking to get onto the property ladder

If you’d missed the news, last week, Skipton Building Society emerged offering the first 100% mortgage loan designed exclusively for long-term renters. 

Having been described by commentators as a “revolutionary” way to make homeownership much more widely accessible for long-term renters – we take a quick glance at what the new mortgages mean for tenants and landlords alike…

What is a 100% mortgage?

A 100% mortgage is when you borrow the entire value of the home that you want to buy. Whilst most mortgages require you to put down at least a 5% deposit, the 100% mortgage 

means you don’t need to pay any money upfront to get a home.

For example, if your desired home costs £200,000 – then you would borrow the full £200,000 from the lender, and not need to contribute any of your own cash up-front. 

Who offers a 100% mortgage?

Currently, Skipton Building Society’s new mortgage is the first of its kind. However, that doesn’t mean that other lenders will not follow in launching a similar offering. 

There are currently certain hoops that applicants for Skipton’s new mortgage will have to jump through. Including:

• The monthly mortgage payment must be equal to or lower than the rent the applicant is used to paying.
• Applicants also have to meet the standard credit checks and affordability requirements. 

What does this mean for renters?

The reintroduction of 100% mortgages is a significant development for tenants who’ve been eager to break free from the cycle of renting, but who may have been unable to save for a substantial deposit. 

The new mortgages make homeownership much more accessible for those who can reliably pay their rent each month, indicating they’d be equally capable of handling mortgage payments.

The benefits to renters are as follows: 

• May be useful for long-term tenants stuck in the rental cycle, who are otherwise struggling to get onto the property ladder.
• Unlike previous ‘guarantor mortgages’ there is no requirement for buyers to rely on families to support them if they cannot make their mortgage payments.

What about landlords?

That all sounds great for tenants, but what about landlords? We hear you.

Landlords, you don’t need to worry about a dwindling tenant pool. Whilst 100% mortgages may be a great leg-up for aspiring homeowners, they are not without their own set of risks and pitfalls…

Potential risks of the new mortgage: 

• No deposit often means higher monthly payments due to elevated mortgage rates.
• A limited number of lenders leads to less competitive offers.
• Risk of negative equity increases if property prices drop – your mortgage might end up costing more than your home’s worth.

In addition, the allure of renting remains strong among younger demographics who value the freedom and adaptability it provides. With many still finding the prospect of homeownership and its associated responsibilities and potential financial risks, daunting.

So, whilst 100% mortgages could be a great opportunity for some, we’d like to reassure landlords that the rental market remains strong – and we expect to see continued growth within the demand for rental properties. 

What do we think?

Here at Pearson Ferrier, we’re excited by the new opportunities for homeownership available to long-term renters who had been struggling to otherwise get on the property market and can appreciate why The Skipton Building Society have launched their new mortgage. 

At the same time, we want to highlight the strength of the rental market. Highlighting its inherent flexibility, lower initial costs, and the absence of property upkeep obligations. It’s important to remember that a mortgage, even one entirely financed, isn’t for everyone.

If you’ve got any queries or questions about what 100% mortgages mean for you, whether you’re a tenant or a landlord, please give us a call on 0161 764 4440 or get in touch here. 

Disclaimer: Please note, we strongly recommend consulting with an independent financial advisor prior to entering into any mortgage arrangements.