Are they back?
Skipton building society have announced the return of a 100% mortgage loan, i.e. no deposit is required if you are eligible for the scheme. The scheme is known as the Track Record mortgage.
The Track Record mortgage is available for first-time buyers who have been renting and can demonstrate a track record of affordable payments of monthly rent and household expenses for a minimum period of 12 months.
The criteria for the Skipton mortgage is as follows;
- Up to 100% LTV mortgage for first-time buyers currently renting, who can demonstrate a track record of affordability of ALL monthly rent and household expenditure for a minimum of 12 months in the last 18-month period.
- If there is a deposit, we are happy to consider even if it’s gifted. If the client has a deposit of 5% or more, they should seek our standard products as Track Record is designed for >95% lending.
- The monthly mortgage payment must be equal or lower than the average of the last 6 months rental cost – e.g., if the average rent over the last 6 months is £800, the mortgage payment must be £800 or lower.
- Max mortgage term of 35 years.
- Max 4.49 X Income
Who is eligible?
- Each mortgagee must be a first-time buyer
- Each applicant is aged 21 or over
- If you have a deposit, it must be less than 5% of the purchase price
- Each mortgagee must have no missed payments on debts / credit commitments (e.g. mobile phone bill) in the last 6 months
- The mortgage loan required must be less than £600,000
- The mortgagees must meet the lenders “household-to-household” criteria
- The property is not a new build flat
- Each applicant has proof of having paid rent for at least 12 months in a row, within the last 18 months
- Each mortgagee has a minimum of 12 months experience paying all household bills within the last 18 months.
Bank of England urges banks and borrowers to be cautious.
The Bank of England Governor, Andrew Bailey, has warned that we need to be careful with 100% mortgage loans. He commented.
Buyers and banks need to be "very careful" with 100% mortgages that have no deposit requirement, the Bank of England has warned.
Bailey said "quite a few problems" could arise from such deals which some see as riskier.
However, zero deposit mortgages have been seen as riskier loans, and were one of the contributing factors behind the 2008 financial crisis, when many borrowers found themselves unable to afford their repayments.
"I think we have to watch it very carefully," Mr Bailey told the BBC when asked about the return of 100% deals.
He added that the risks needed to be well assessed by both lenders and borrowers.
"I’m not going to say no to 100% mortgages but both lenders and borrowers have to be very careful about this," he added.
"You can get quite a few problems. People can often get stuck with mortgages for a long period of time which they can’t trade out of."
What are the other options for borrowers seeking assistance with gaining a mortgage?
There are two key options for borrowers who are looking to borrow 100% of the property value or gain assistance in borrowing an amount that a lender would normally provide.
Guarantor mortgages and joint borrower sole proprietor.
Guarantor mortgages
A guarantor mortgage is a loan that is guaranteed usually by a parent or a close family member in return for security, such as savings or assets. The mortgage lender will ask for security from the guarantor, such as savings being held on deposit or a charge on a property.
If the mortgagee misses any mortgage payments, then guarantor’ have a legal obligation to repay the lender.
A guarantor can be liable for the entire value of the mortgage. A guarantor mortgage is for mortgagees who generally don’t have enough income to qualify for a mortgage on their own, or at the level of borrowing required.
The guarantor provides a guarantee that they will repay the amount borrowed if the borrower does not repay their agreed payments.
A guarantor mortgage is typically used where there is little or no deposit available.
Joint borrower sole proprietor mortgages
The joint mortgage sole proprietor mortgage product is aimed at mortgage applicants who cannot afford the full mortgage amount required on their own, but potentially could afford the mortgage with the help of a close family member.
This means that mortgagees with a salary, that will not permit them to borrow the amount required, can get support from a family member, partner, or friend to jointly apply for a mortgage.
The joint borrower takes on liability/ responsibility for the mortgage. With the mortgage lender assessing overall affordability based upon the mortgagee’s and joint borrower’s financial position. The joint borrower will not be registered as a legal owner of the property.
A Joint Borrower Sole Proprietor Mortgage differs to a normal mortgage because:
- joint borrowers aren’t registered on the legal title.
- All parties, whether legal owners or not, are equally liable to repay the full mortgage.
- All parties, whether legal owners or not, are bound by the terms of the mortgage.
- The joint borrower does not have the rights to sell, use or transfer their names from the legal title.
A joint borrower sole proprietor mortgage is typically used when as a mortgagee you are potentially wanting to borrow funds that typically will not fit lenders affordability. Assisting the mortgagees’ to borrow additional mortgage funds to purchase.
There are over 30 lenders available with either joint borrower sole proprietor or guarantor mortgage schemes.
In future blogs we will explore guarantor and joint borrower sole proprietor mortgages in more detail. MMPE are Independent Mortgage Brokers, we can assist with appropriate advice on 100% loans, guarantor, and sole proprietor joint borrower mortgages. If you would like to review your options, please use this link to schedule an appointment.
