Skipton’s 100% mortgage for renters offers hope – but not without risk
With hindsight, one of Britain’s biggest building societies could definitely have picked a better day to launch a first-of-its-kind 100% mortgage.
On Tuesday morning, just as the press release was being sent out and Skipton building society boss Stuart Haire was preparing for his BBC Radio 4 Today programme interview, the Halifax reported that average UK house prices fell in April, by 0.3% month on month, and that “we should expect some further downward pressure on house prices over the course of this year”. To add to the gloom, the struggling online estate agent Purplebricks reported a further worsening in trading, there was a profit warning from another firm reliant on the housing sector, and many housebuilders saw their share prices fall.
The Skipton’s new mortgage is the UK’s first 100% home loan exclusively for renters. It has been described by some commentators as a “revolutionary” way to help people off the high rents treadmill and into homeownership, and by others as not too dissimilar to the risky loans that contributed to the 2007-08 financial crash.
Wherever you stand, Tuesday’s wave of negative housing market news throws the spotlight on the elephant in the room with this type of deal: even a small fall in house prices going forward will put those who sign up into negative equity, where people are trapped in properties worth less than their mortgages.
To be fair to the Skipton, it has structured its new deal in a way that addresses at least some of the risks. Standard home loans where the borrower does not have to put down a deposit used to be fairly commonplace – there were deals that let you borrow up to 125% of a property’s value – but the last was axed in 2008. The financial crisis ushered in a clampdown on
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