Skipton to offer 100% mortgages

Aberdeenangarse

According to the Telegraph.

Deposit-free mortgages are about to return to the housing market – but experts have warned they pose a risk of negative equity and threaten to destabilise the banking system.

Skipton Building Society plans to launch a new loan that would allow borrowers to bypass standard deposit requirements by using their rental payment history. Borrowers typically need to pay a deposit of at least 5pc of the purchase price when taking out a mortgage.

Skipton said its mortgage would “enable people trapped in rental cycles – where they’re prevented from being able to save for a house deposit – to access the property ladder”.

Aberdeenangarse

I wonder how long before someone starts flogging 125% Mortgages, like Northern Rock did just before the GFC? I seem to remember that didn’t end well!

mi-key

Aberdeenangarse said:

I wonder how long before someone starts flogging 125% Mortgages, like Northern Rock did just before the GFC? I seem to remember that didn’t end well!

Hopefully we will never see those again !

ACG

Negative equity only becomes an issue if you are trying to sell. People do not usually plan to buy and then sell within 5 years, at which point I would assume any house price drops would have probably recovered/mostly recovered. 

I do not care if my house is worth £1 or £1 million. It is all relative and I have no intentions of moving. 
If someone has no deposit and is paying £1,000 a month in rent but can get a 100% mortgage paying £800 a month, is that not doing the person a favour? 

As a broker, I am not sure where I stand on it. I think it is a good idea, but in a world where people like to complain and everything is someone elses fault I would be reluctant. 

waseem432000

I have been paying £1250 a month rent from last 2 years(paid £1200 a month for 2 years before that) so if a lender sees those payments, credit history, income and affordability and then is willing to offer 100% mortgage, many people including me, will happily take that. I don’t know the wider impact of 100% mortgages on financial market or banking sector but this could only be good news for people struggling to buy their first properties.

housebuyer143

The problem with 100% mortgages is the buyer has no stake in the property. They can't afford the repayments and they decide to just leave, they have loss less than they would have if they had been renting. If they fall into negative equity and then decide to get repossessed then it's the bank that takes the financial hit and the loss.

Deposits are there to cushion the lender against financial loss and having money in the property encourages people to keep up with the payments if times are hard.

Why does this feel like a return the pre financial collapse... Apparently it's been long enough now and the market has slowed enough that it's time to start risky lending again. 

ACG

Its a little different with building societies though. 
Banks are able to leverage their debt. Building societies as far as I am aware can not do that. This wont become a mainstream thing. 

I imagine (just guessing), Skipton have a very low LTV book. This is a way of them getting business in at a good margin (its unlikely to be below 5% interest) and has very little risk to their overall book of mortgage customers. I am guessing it will also only be a 5 year fixed rate (again, I could be wrong), with a drop in interest rates expected in maybe 2 years time it could be a good money earner for Skipton whilst also helping people. 

You are right, it could be a case of easy come, easy go for some people but they will be liable for any shortfall in debt. The applicants are then also going to have bad credit and probably unable to buy a home again for the foreseeable future as they will be back to renting and with bad credit. They wont be getting 90-100% mortgages with a repossession. 

I can see why Skipton would do this. I think they will be busy fielding calls but I also think the likelihood of passing the credit check is going to be limited to the best of the best (that does not mean 999 on equifax/experian) - if you have just started a new job, have a missed credit card payment from 2 years ago and are looking to max out borrowing I think you will probably struggle. 

lojo1000

ACG said:

Negative equity only becomes an issue if you are trying to sell. People do not usually plan to buy and then sell within 5 years, at which point I would assume any house price drops would have probably recovered/mostly recovered. 

I do not care if my house is worth £1 or £1 million. It is all relative and I have no intentions of moving. 
If someone has no deposit and is paying £1,000 a month in rent but can get a 100% mortgage paying £800 a month, is that not doing the person a favour? 

As a broker, I am not sure where I stand on it. I think it is a good idea, but in a world where people like to complain and everything is someone elses fault I would be reluctant. 

Do you consider the financial risk it puts families in? If the unexpected happens and you need to sell, it does matter if you borrowed 100% of the purchase price.

middleclassbutpoor

Perhaps the way that it could work is that you match the rental payments but the amount you borrow would not allow you to maximise your lending based on the rental payment but instead a slightly lower amount to create a forced overpayment to help create equity?

Example;

If you are paying £1250 a month rent.  The equivalent mortgage payment @ 5% interest rate would afford you £214k in borrowing. 

However they could say the maximum you could borrow is 80% of your affordable borrowing. 

In this case circa £171k -  which @5% would mean the borrowing costing you £1k p/m in mortgage payments.

The expectation could be that this then created affordability in your budget to overpay the debt and reduce it more quickly for . 

There used to be stepped mortgages where the payment would start lower and increase - designed for people like Dr's and Accountants where expected earnings would increase with experience and time.  This could be a simple reversal of this principle by creating a condition of the mortgage to force an overpayment to pay down the debt a bit more quickly?

Will be interesting to see what impact this has. I would assume that this would be very much a product for the people who are very low risk in every other aspect of their financial lives. 

lojo1000

I don't think the government should allow anything over 50% debt/equity when buying a house.

Prices would fall to a new equilibrium and from there the financial risk would be lower on both the buyer and the lenders.

tacpot12

lojo1000 said:

I don't think the government should allow anything over 50% debt/equity when buying a house.

Prices would fall to a new equilibrium and from there the financial risk would be lower on both the buyer and the lenders.

That's an interesting idea.