Skipton Building Society has launched a new zero-deposit mortgage aimed at helping first-time buyers and renters get on to the property ladder.
The ‘track record’ mortgage is intended to allow people with a strong history of paying their rent on time and in full to buy their first home with little to nothing as a deposit.
First-time buyers aged 21 and over may be able to take out a mortgage between 95% to 100% of the value of the property they want to buy, but in return must provide evidence of a minimum of 12 months of rental history.
David Hannah, Group Chairman of property tax experts, Cornerstone Tax states that the introduction of the ‘track record’ mortgage is a good step to aid first-time buyers but more must be done. New data from UK Finance shows that first-time buyers are using ultra-long mortgage terms in order to get on the property ladder.
The number of new homes purchased by first-time buyers with a mortgage term above 35 years has more than doubled, in a move to reduce homeowners’ monthly repayments. These types of mortgages accounted for 18% of all new homes purchased in February 2023 versus just 8% a year earlier according to UK Finance.
However, by adding years to their mortgage terms, buyers are set to pay significantly more in additional interest payments. Private Finance shows that if a first-time buyer was to borrow £450,000 over a 25-year term with a 4.5% interest rate and £999 fee, they would pay back £751,000 over the course of the mortgage. If they were to extend the length to a 40-year mortgage they would pay back £972,000 – £221,000 more than the shorter term mortgage.
A new landmark study from property experts, Cornerstone Tax highlights the continued desire from first-time buyers to step onto the property ladder, as 32% of Brits now say that buying property is their main investment goal.
This comes amidst Rightmove’s data that shows that houses bought by first-time buyers witnessed a 2% growth over the year, meaning that the average asking price of a first-time buyer property now stands at a record £224,963. Agreed sales to first-time buyers are now 4% higher than in March 2019 as the average rate of a first-time buyer’s 5-year fixed mortgage deal with a 15% deposit has now fallen to 4.46%.
There has also been a reduction in the demand and supply imbalance as more stock becomes available for buyers. Estate agents have reported that there were 35 homes for sale per branch in March. This was the highest number of homes for sale per branch since January 2021 – a year ago, there were just 20. This has encouraged a wave of buyers back to the market, resulting in an increase in the number of sales agreed – with numbers reflecting pre-pandemic levels in 2019.
David Hannah, Group Chairman of Cornerstone Tax said, The announcement of zero-deposit mortgages will come as welcomed news for those stuck in generation rent, and we could see a surge of activity in the housing market as we saw with the stamp duty holiday which began in 2020. The biggest issue preventing first-time buyers from stepping onto the ladder is saving up a deposit and the introduction of this mortgage offer removes that barrier totally.
“Whilst there are some concerns about this type of mortgage given what happened in the 2008 financial crash, I believe that a lot has been learned since then and affordability tests will be thorough. I also think that the risk of falling into negative equity may only be present for some who buy and sell quickly afterwards – new homeowners that hang onto this home for a number of years should see their asset increase in value.”