Rarely does the market see a ‘genuine’ new product arrive, but Skipton Building Society claims to have done just that with the introduction of a Track Record Mortgage for first time buyers.
It will allow tenants with impeccable payment credentials to get a start on the housing ladder.
In truth, not entirely a fresh initiative – back in the autumn the Government was promoting a “history of paying rent” as a way for lenders to help prospective purchasers catch a break. However, the Skipton maintains they are the first to pick up the ball and run with it.
No unanimity on whether it will prove a success. Some fear it could risk over-borrowing and negative equity.
You’ll be tied in for five years too. This means that even if other interest rates go up or down during that time, yours won’t change.
Reaction has seen most pundits favourably inclined, fingers-crossed for a good outcome.
The Skipton has no doubts.
It insisted: “For too long, deposits have held back renters from becoming homeowners. With house prices and the cost of living rising, how can people be expected to pay their rent, keep up with bills and save five-figure sums for deposits?
“We think that needs to change. Which is why we’re putting our money where our mouth is with our brand-new Track Record mortgage – the first of its kind – where we look at a renter’s history of making rental payments, and if they meet affordability criteria they can access a mortgage without a deposit.
“We think this could be the start of the great shift – turning generation rent into generation homeowner.”
The deal comes with a 5.49 per cent rate, up to 100 per cent loan to value, no fee, and a maximum term of 35 years. Buyers will be able to borrow up to 4.49x their income to a maximum total loan of £600,000. All applicants will need to provide evidence of a minimum of a 12-months sound rental history.
Other criteria includes:
- You must also have 12 months experience paying all household bills within the last 18 months.
- Each applicant will have no missed payments on debts/credit commitments in the last six months.
- The monthly mortgage payment must be equal to or lower than the average of the last six months rental cost.
Back when the Government were floating the possibilities, Jamie Lennox, at Dimora Mortgages, took a downbeat stance.
He told Mortgage Solutions: “The big issue with going down this route is a tenant isn’t responsible for maintaining the property. Therefore, being able to just afford the rent is not enough to demonstrate the ability to pay a mortgage.
“The concept would work if rates never changed and there was never a recession, but these two can’t be guaranteed and therefore I don’t see this as a viable solution in the long run.”
However, the Skipton says the Track Record Mortgage has been created with potential risks in mind, including negative equity.
Speaking to This Is Money, David Hollingworth, of L&C Mortgages, said: “It won’t solve all the difficulties for first-time buyers and there will be affordability limitations on the borrowing amount which may still not meet the required purchase price. However, it offers a measured approach that gives credit for the fact that many tenants will have built up a strong track record of managing their housing costs responsibly.
“There will always be concerns that no deposit could risk negative equity but this is a longer term product for that reason.”
There are 4.6 million households renting privately across England, according to the Skipton, double that in 2000.