New Zero-Deposit Mortgage Available for Renters

Posted: 12th June 2023

Skipton Building Society has launched a new zero-deposit mortgage called the “Track Record” mortgage. The Track Record mortgage is a 5-year fixed deal specifically for first-time buyers who are currently renting.

Who Is the New Zero-Deposit Mortgage Aimed At?

Skipton Building Society’s new zero-deposit mortgage is aimed at helping first-time buyers in Britain who have been unable to save for a deposit. It is designed to allow people with a record of paying their rent on time and in full the opportunity to purchase their first home with little to no down payment.

The monthly mortgage payments are calculated based on the individual’s rental payments over the last 6 months. So, if they paid £1000 in rent each month for the past 6 months, then mortgage payments will be £1000 or less. This gives the mortgage lender security that the borrower can keep up with their payments because they have done so whilst renting. It also gives the borrower a good idea of how much they can afford each month and instead of putting that money towards their rent, they can use it to own their own home.

What Are the Benefits of the New Zero-Deposit Mortgage?

One major benefit of the Track Record mortgage is that renters do not have to save for an extensive period of time to accumulate a substantial deposit. Given the rising rents and increasing house prices and inflation, many renters are finding it difficult to save a deposit for their first home. Instead of providing a deposit, renters can show evidence of their rental history to demonstrate that they can keep up with monthly mortgage repayments.

Another benefit of the Track Record mortgage is that mortgage holders can make overpayments of up to 10% of the original balance every year and there will be no Early Repayment Charges (ERCs). This means that if people receive gifts or are able to save money, they can lower their mortgage repayments by putting more equity into their home.

Unlike other deposit-free mortgages on the market such as the guarantor mortgage, the Track Record deal does not require someone to name a guarantor who will make payments on their behalf if they default. This takes away the issue of finding a trusted family member or friend who will take on this responsibility.

What Are the Disadvantages of the New Zero-Deposit Mortgage?

The biggest disadvantage of the Track Record mortgage is the risk of falling into negative equity. Negative equity happens when a buyer owes the mortgage lender more than what their home is worth (the current market value). This is because the Track Record mortgage allows buyers to borrow up to 100% of the property’s value, so there is the danger of moving into negative equity if house prices fall.

On another note, the mortgage rate is fixed at 5.49% which is higher than current average mortgage rates. However, this will be fixed for 5 years and there is no telling whether the rates will increase or decrease in this time.

What Are the Requirements for Skipton’s Track Record Mortgage?

To be eligible for Skipton’s track record mortgage, prospective buyers must meet the following requirements:

  • Be a first-time buyer and 21 years old or more
  • Show that you have made full rental payments consecutively for a minimum of 12 months within the past 18 months
  • Have a no deposit or a deposit that is less than 5% of the property purchase price
  • Have a 12-month track record of paying household bills
  • You don’t need to borrow more than £600,000
  • You have not missed any debt or credit payments in the last 6 months
  • You don’t wish to purchase a new-build flat

What Evidence Do You Need to Meet the Rental Requirements?

First-time buyers will need to show evidence of at least 12 months of rental history. This can be proven through bank statements or a letter from a registered letting agent such as a member of the Association of Residential Lettings Agents (ARLA) or another reputable organisation such as NAEA or NACA.