For those people who are renting and struggling to save a cash deposit for a home, getting a mortgage can often seem like an absolute pipedream.
However, the recent reintroduction of deposit-free deals could turn those dreams into reality.
Deposit-free mortgages where there is no financial guarantor necessary have become available for the first time since the 2008 financial crash.
Skipton Building Society has recently introduced its 100% loan-to-value mortgage, which requires no deposit and no financial backing from family or friends.
A few deposit-free mortgages have been available in the last decade or so, but have required a financial guarantor to be named on the mortgage. That means the guarantor would need to meet any missed repayments and would also be at risk of home repossession or a loss of their own deposit into the mortgage.
To qualify for Skipton’s new offering, you must be a first-time buyer and have proof of 12 months’ worth of rental payments, submitted on time of course, plus a good credit history.
It has been designed in the main to help those people who rent their homes and haven’t been able to save for a deposit.
It certainly sounds promising but it is important to remember that there are risks to a deposit-free mortgage.
For one, the interest rate in Skipton’s case (5.49%) is more expensive than the current average five-year fixed rate of 5%
Another risk is potential negative equity. This can occur when the value of your property falls, and the value of your loan becomes more than that of the property.
If you haven’t paid a deposit then you have got less money invested into the property, and therefore the amount of equity you have in your home is lower. So a fall in house prices could have a negative impact.
It is not necessarily a problem if you are happy with your mortgage lender and aren’t looking to move, but if you are looking to make a change at that time then you could find yourself unable to move without having to suffer a financial hit.