Zero deposit mortgage introduced for first-time buyers

A new zero-deposit mortgage has been launched by mortgage lender Skipton Building Society. This means that potential buyers will not need to put any money toward their new home deposit to secure a mortgage. 

However, this new zero-deposit mortgage called the “Track Record” mortgage is only available to first-time buyers who are currently renting a home. Rents are at an all-time high according to reports from the Office for National Statistics which say that there has been an increase over the last 12 months by 4.4%. As such, it has been a difficult time for renters who want to save money for a house deposit whilst they are also having to tackle increasing rents, utility, and food bills too. In light of this, being presented with a chance to get a mortgage without having to actually put any money down is the ideal scenario to help them buy their first home. 

In order to be eligible for the zero deposit mortgage, renters will need to show evidence of paying their rent for 12 months consistently without defaulting or going into rent arrears over the last 18 months. This will demonstrate their reliability to keep up with monthly mortgage repayments. Individuals could provide proof of keeping up with their rent by providing bank statements and a letter from a registered letting agent. In addition, first-time buyers will need to be over the age of 21 and not looking to buy a new flat or to borrow more than £600,000.

Currently, Skipton Building Society is offering a 5-year fixed mortgage rate product at 5.49% with a maximum mortgage term of 35 years. However, this rate may increase in the future if there is a surge in demand for instance, or if the Bank of England base rate rises which can affect mortgage rates. According to Zoopla, the average 5-year fixed mortgage rate is 4.65%, therefore, buyers are paying more than the average rate for the zero deposit mortgage. This accounts for the fact that they do not have to put any of their own savings down towards a deposit and instead, will be paying more toward their monthly mortgage repayments. 

Whilst this new mortgage deal seems very appealing, there are concerns that after the 5-year fixed period, individuals will likely not have built up much equity in the property and therefore may not have many options available to them when it comes to remortgaging. Alternatively, they may be in a position where they can only choose high percentage mortgage deals. It is difficult to predict how the mortgage rates will look in 5 years, but for those who do not foresee any other means of getting onto the property ladder, this seems like an accessible option.

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