Written by on May 16, 2023
Skipton Building Society’s launch of its first 100% mortgage since 2008 that does not require family support is not only welcome for FTBs (first time buyers) who can meet its criteria but may also be worth considering for some FTBs who have a family support offer.
I will first summarize the key criteria points and then consider why even some FTBs with Family Assistance are available to find this mortgage attractive.
A residential track record mortgage is only available to first time buyers who are currently renting and addresses a common complaint from tenants that they cannot get a mortgage even if their monthly payments are not more than the rent they are paying. The maximum available mortgage is calculated with reference to the monthly rent payments.
Initial mortgage rate of 5.49% fixed through 8/31/28 with no arrangement fee.
To qualify for this mortgage, applicants must meet the following criteria:
- Minimum age of 21 years (applicable to everyone if applying jointly, even for an applicant without income)
- Must be FTB (again applies to all if it is a joint application)
- You must have a good credit history, with no missed payments in the past six months – including things like mobile phone bills
- You must be able to prove that rent has been paid for at least 12 consecutive months within the last 18 months
- You must have 12 months experience paying all household bills within the last 18 months
- The applicant(s) must be the same person(s) who made the rental
- The maximum loan is £600,000
The next question for potential applicants who meet the above criteria will be: How much can I borrow? Or in other words: What is the maximum purchase price that I can pay?
This is calculated as follows: *Monthly mortgage amount must not be more than the average rental cost for the last 6 months*.
The maximum age is 35, provided that the applicant is not more than 40 years old when the mortgage is initiated. Some applicants may prefer a shorter but 35-year term that allows for the largest loan, as an example, Rental payments of £1,000 per month would allow for a maximum loan of £186,442 and pro rata. The maximum loan is limited to 4.49x income, so this example would need a minimum income (individual or combined) of £41,524.
To calculate affordability Skipton will of course take into account any other financial commitments but more importantly affordability is calculated on the basis of the pay rate, not the top squeeze rate.
If a couple is buying together and each previously rented individually, the combined rent payments can be used to calculate the maximum loan, provided each previously lived alone.
Unlike many higher value-added mortgages, this one is available on new homes, although not on newly built apartments.
Some other points to consider:
- 5.49% is a very good rate for a 100% mortgage but the best rates are at 95% LTV at least 0.5% lower
- The ERC (Early Settlement Fee) rate (6% / 6% / 5% / 4% / 1.75%) is higher than it is for most 5 year fixes and so buyers need to have confidence that they will stay in the property for at least 5 years. Even with the principal paid off and no change in property value, ERC can result in negative equity in the early years
- Assuming no change in property value and a duration of 35 years, LTV would have fallen to 95% after 5 years
- A negative equity is always a risk but there are various risks in continuing to rent, including the potential for rent to increase over 5 years in contrast to fixed mortgage payments, no security of tenure, or the ability to make changes to the property without the landlord’s permission
- Skipton’s current product range only includes retention products up to 90% LTV but to comply with consumer duty I am confident that Skipton will offer affordable retention options to borrowers, even if LTV remains close to 100%
- The minimum loan on this mortgage is 95.01% but overpayments can be made via ERC of up to 10% p.a. So, a tenant with a deposit of, say, 10%, who qualifies for this mortgage but not an alternative 90% perpetual mortgage could apply for 95.01% and pay off 5% of the loan shortly after completion.
- Some tenants may be interested in buying the home they are renting and landlords are considering selling it more than usual. Any cost savings in such an arrangement could be shared between FTB and the owner and FTB would avoid the hassle and cost of transportation
As mentioned at the top of the article, I believe that even some FTBs with family assistance may find this mortgage attractive because:
- The price is cheaper than some other options. For example, the Barclays Family Springboard Mortgage is also fixed for 5 years but the rate is 5.89% at 100% and 5.84% at 95%, despite the 10% deposit that the family member has to put into a savings account with Barclays reducing the net worth effective standing. by 10%
- Even with the family helping to deposit, FTBs still have to meet the lenders’ affordability tests for the full amount of the mortgage, which in some cases can mean that even though they qualify for a 100% Skipton mortgage, they don’t qualify. To get a low value LTV mortgage from other lenders. However, many building societies offer lower rates, including in a few cases as high as 100% LTV, with a 20% family deposit attached and some offer sole owner mortgages, the co-borrower. Therefore, if family assistance is available, it is important to fully consider all options with and without such assistance
Estate agents may be less inclined to recommend to their clients than sellers a buyer who requires a 100% mortgage, and so before actively starting a home search FTBs should consult a good, independent market mortgage broker such as John Charcol who can not only advise in All mortgage options available, but also where required You will actively engage with the Estate Agent to assuage any concerns about the availability of suitable mortgage financing. Contact us on 0330433 2927.
category: Ray Bolger