Expert Guest Article
Finance and Mortgage Services Director
Capital Private Finance
Ever since the financial crash and crisis of 2008, the 100% mortgage has been associated and intertwined with financial mismanagement and economic doom. In fact, the Northern Rock Together Mortgage, which most people associate with this period, was not strictly speaking a 100% mortgage (it was a 95% secured loan combined with up to 30% unsecured); however, it was around at the time of the “Run” on Northern Rock that indicated the start of the infection of financial disaster over to the UK.
The Northern Rock problems started when they created questionable mortgage-backed securities called CDO’s (Collateralised Debt Obligations), which were a toxic cocktail of high-risk loans from Sub-Prime Mortgages, as well as dubious car loans that led to the eventual collapse of Lehman Brothers in the US, which was dramatised in the film “The Big Short”.
At the time, the Northern Rock products had been working quite well, there was minimal bad debt and the UK was riding high on the elixir of a booming housing market and economy. However, it is fair to say that UK banks took their mortgage products responsibilities far too lightly, handing self-certification and non-status mortgages available.
With the resulting partial nationalisation of Lloyds and Natwest, still partly in place, and the years of austerity that followed these events, it is little wonder that 100% mortgages ring alarm bells with some. When Skipton Building Society announced with much fanfare that they were launching a new 100% product to the marketplace last month, when the housing and mortgage market is just stabilising off the back of a rather large “wobble”, we all took notice.
In fact, the Skipton “Track Record” 100% Mortgage judges affordability only on the credit record and perceived affordability determined by a bank’s algorithms. The product is available for first-time-buyers and aims at tenants who have been struggling to save for a property deposit due to the ever-increasing rents and a cost of living crisis.
The Track Record mortgage looks at whether the potential borrower has been keeping up their regular rent payments and on time over the last 12 months and uses that monthly payment as evidence of affordability of a similar (but not larger) monthly mortgage payment in the future*. Of course, you still need to have a good credit record and the lending parameters are determined by the previous monthly payments or combined payments from you and a partner.
The product is opening a door to an innovative lending process to qualify who can borrow and how much they can afford.
Skipton’s timing is a definite vote of confidence in the strength of the UK housing market, as they must be very confident that prices have at least stabilised and maybe expect growth again, as no lender would want a significant portfolio of property in negative equity on their books.
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*TO QUALIFY FOR THE NO DEPOSIT MORTGAGE YOU MUST HAVE RENTED FOR AT LEAST 12 MONTHS AND THE MORTGAGE PAYMENTS MUST BE AT LEAST £1 LESS THAN YOUR CURRENT RENTAL PAYMENTS. ALL MORTGAGES ARE SUBJECT TO STATUS AND LENDER CRITERIA. MORTGAGE PRODUCTS CAN BE WITHDRAWN AT ANY TIME.
A FEE WILL BE PAYABLE FOR ARRANGING YOUR MORTGAGE. YOUR CONSULTANT WILL CONFIRM THE AMOUNT BEFORE YOU CHOOSE TO PROCEED.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE.
Mortgages available through Capital Private Finance. Capital Private Finance is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only. Registered Office: Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP. Registered in England & Wales under number 07552028.