Skipton Building Society has launched a 100% mortgage for tenants with a strong track-record of paying the rent on time – the first of its kind for 15 years.
The so-called Track Record Mortgage is offered at 4.39% for a maximum of 35 years, while it comes with no fees.
Danny Belton, head of lender relationships at Legal & General Mortgage Club, said: “A product that supports those with a strong history of rental payments, and those who have paid household bills over a prolonged period of time, is exactly the kind of innovative offering the market needs to help people make the transition from renting to buying.
“Many buyers have already proved their ability to pay high monthly rental payments, and it’s encouraging that a lender is now recognising this in its criteria requirements.
“Of course, the industry is acutely aware of the potential risks, such as borrowers being more vulnerable to decreases in their own home value and therefore going into negative equity.
“However, it’s important to remember that affordability checks are much more robust now than in 2007/8, and we should welcome the lender’s forward-thinking approach with this product.”
Negative equity is when the mortgage loan becomes worth more than the property, which can happen when prices fall.
If that happens it can be hard for owners to remortgage until they either pay off a chunk of the mortgage or house prices rise again.
Halifax reported that average UK house prices fell by 0.3% in April, while it said further falls are expected this year.
Adrian Anderson, director of property finance specialists, Anderson Harris, said: “For renters wanting to get onto the property ladder with good credit history and a 12-month track record of meeting rental payments on time, this is potentially welcome news.
“This new product removes the stumbling block of saving for a deposit and the ever-growing reliance on the Bank of Mum and Dad to facilitate home ownership. We have already taken a number of calls today from interested first time buyers.
“Whilst the launch of this product has been much-anticipated, even those with larger incomes could still struggle to purchase the homes they desire due to the restrictions in the product’s lending criteria, the wider high interest rate environment and high house prices in many areas of the UK.”
Rob Houghton, chief executive of reallymoving, the price comparison site for home movers, said: “For a lot of people who don’t have the means to save whilst paying record high rents, and who aren’t lucky enough to receive gifts of large sums from family members, home ownership feels like a pipe dream.
“For years, responsible renters have been calling for their payment history to be taken into account, and if they can show that over time they’ve had no issues affording rent which is at least as high, if not higher, than their mortgage repayment would be, that should provide reassurance to lenders.
“There are undoubtedly risks and people need to be made fully aware of them. Borrowing 100% of a property’s value means you’re banking on property prices going up. While that will probably be the case for most people who are able to stay in the property for at least 3-5 years, which is what we always recommend, it won’t be the case for everyone.
“But it’s a different property market landscape to 2008 and lenders today are much more cautious. Robust vetting processes must be applied to ensure higher risk borrowers are filtered out.”
