How does Skipton’s 100% mortgage work?
If you’re living in a rental property and you’re struggling to save a deposit, Skipton Building Society’s 100% mortgage could hold the key to your first home.
It’s the first no-deposit deal of its kind to be launched in the UK since 2008. Several lenders already offer 100% mortgages, but they’re only available to applicants with a guarantor or family support.
With the help of Skipton’s Track Record Mortgage, more renters could get on the property ladder without help from family or needing to spend years saving.
This guide explores whether 100% mortgages are worthwhile, the eligibility requirements for Skipton's 100% mortgage, and available alternatives.
What is a 100% mortgage?
A 100% mortgage is a type of loan where you borrow the full value of your chosen property. This means you won’t need to save a deposit as you would with a standard mortgage.
When buying a property, most borrowers need a deposit of at least 10%, although some first-time buyers can put down just a 5% deposit, particularly if the buyer has a guarantor or is using a scheme such as Deposit Unlock. Lenders typically view smaller deposits as higher risk, which is why 95% Loan to Value (LTV) mortgages often come with stricter eligibility criteria and higher interest rates compared to mortgages with larger deposits, like a 70% LTV mortgage.
You might be wondering why 100% mortgages aren't more widely available today. Before the 2007/2008 financial crisis, they were much more common; some lenders even offered 125% mortgages that gave borrowers extra funds for moving costs and renovations.
Following the 2007/2008 financial crisis, lenders tightened their criteria significantly, which is why 125% mortgages are no longer available.
100% mortgages are still available, but normally only if you have a guarantor or family members willing to use their savings or property as security.
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What is Skipton’s Track Record mortgage?
Skipton’s Track Record Mortgage is a 100% mortgage designed to help eligible renters buy their first home, even if they don’t have a house deposit.
The Track Record Mortgage can be used to buy homes worth up to £600,000, but the exact amount you can borrow will be based on the amount of rent you pay and your ability to meet Skipton’s full affordability criteria.
No matter how much you borrow, the interest rate will be fixed for the first 5 years. Skipton also now offers a Delayed Start feature. This lets you pause your first 1-3 monthly repayments after completion, giving you breathing space to settle in, although interest will still accrue from day one. So even if interest rates rise or fall during that period, your interest rate will stay the same.
A fixed-rate mortgage may be ideal if you want to know exactly how much your repayments will be for a set period of time. But fixed deals are often more expensive than variable-rate mortgages. This is because lenders effectively charge a premium for the protection and reliability offered by a fix.
If you’re able to save a small deposit, you may be able to secure a better interest rate. Opting for a 95% mortgage, for example, could see you access interest rates below the interest rate you’d be offered with Skipton’s Track Record Mortgage. See your options today for free.
Read more: How long should I fix my mortgage for?
Am I eligible for Skipton’s Track Record mortgage?
You might be eligible for the Skipton Track Record Mortgage if:
- Each applicant is a first-time buyer
- Each applicant is aged 21 or above
- You have a deposit of 5% or less
- You have proof of paying 12 months’ rent in a row during the last 18 months
- You have proof of paying all household bills for at least 12 months in a row during the last 18 months
- You’ve not missed payments on debts and credit commitments over the last 6 months
- You meet Skipton’s household-to-household criteria - this means that the same people who have been renting now (and have been for the past 12-months) are the same people applying for the mortgage
- You’re not buying a property in Northern Ireland or the Isle of Man
You can’t use the Track Record Mortgage alongside other home-buying schemes such as Joint Borrower Sole Proprietor, or Shared Ownership.
How much can I borrow?
The most an applicant can borrow is £600,000, but that doesn’t mean every applicant will be eligible for a Track Record Mortgage of this size.
In many cases, Skipton will cap your monthly mortgage payments at the same level as your current rent, but they could lend up to 120% of your average rent where your wider affordability supports it.
In other words, if you pay £1,000 a month in rent, your mortgage payments would also need to be £1,000 a month or less.
An applicant paying £1,000 a month in rent could be eligible for a loan of £160,002 if they chose a 25-year mortgage term. If the same applicant opted for a 40-year term, their borrowing potential could rise further thanks to the longer repayment period.*
*Numbers from the Skipton Track Record Mortgage Calculator
An applicant would need to be spending upwards of £3,200 a month on rent before they’re eligible for the maximum £600,000 mortgage. With this criterion in mind, some renters may find that they’re still unable to get a mortgage big enough for the home they really want.
At Tembo, after checking your maximum borrowing figure based on your rent, our expert mortgage team will use Skipton’s regular calculator to check your borrowing. Whichever number is lower is what you’ll be able to borrow!
To find out how much you could potentially borrow for your first home, have a play around with our mortgage calculator. It’ll compare thousands of mortgages from hundreds of lenders and even offer tips on how to increase your mortgage size.
Is a 100% mortgage a good idea?
If you’d like to buy a home but you’re struggling to save a deposit while paying rent, a 100% mortgage could be a good idea. There are a few 100% mortgages to choose from, and mortgage advisers can help you find the best mortgage terms and interest rates. Keep in mind that if you don’t have family support, for example through a guarantor mortgage, Skipton’s Track Record Mortgage may be your only option when buying a house with no deposit.
Like any financial product, 100% mortgages come with specific considerations that are important to understand before you decide if one is right for you.
One of the biggest risks that comes with 100% mortgages is negative equity, which is when your home is worth less than the amount you still owe. Here’s how that could play out:
- You buy a property for £400,000 with a 100% mortgage.
- A few months later, the market dips and the property is valued at £380,000.
- You now owe £20,000 more than the home is worth, putting you in negative equity.
- By contrast, if you had a 90% mortgage on the same £400,000 home, prices would have to fall by more than 10% before you hit negative equity.
The newer the mortgage, the more likely you are to fall into negative equity as a result of falling house prices. This is because in the first few years of your mortgage term, most of your monthly repayments will go towards the interest on your mortgage rather than the capital itself.
Negative equity is a problem that could go away on its own. If you’re happy to stay in the property until its value has recovered (or you’re able to rent it out), you may be able to ride out any fluctuations.
If you want to sell the property, there may be a difference between the amount made from the sale and the amount owed to the lender, and it’ll be your responsibility to make up the shortfall. You might also be unable to remortgage the property or switch to a better deal. In extreme circumstances, your home may be repossessed if you don’t keep up with your repayments.
What are the alternatives to Skipton’s 100% mortgage?
Skipton’s Track Record Mortgage is currently the only 100% mortgage that doesn’t require a guarantor or family help, but there are alternative ways to get on the ladder.
- Deposit Unlock - no family support needed
If you can save a 5% deposit, you may be eligible for a 95% mortgage on a new-build property with the Deposit Unlock scheme.
- Armed Forces Help to Buy - no family support needed
If you’re in the Armed Forces, you may be eligible for an interest-free loan, which you could use as your deposit. Under the Armed Forces Help to Buy scheme, you could borrow up to 50% of your salary to a maximum of £25,000.
- Deposit Boost - involves help from a loved one
A Deposit Boost involves two separate mortgages. The first mortgage is taken out by a homeowning friend or relative and is used to release equity from their property. The fund from their home could then serve as your deposit, so you could take out a mortgage of your own.
- Savings as Security - involves help from a loved one
Instead of putting down a traditional deposit, through a Savings as Security mortgage, your relative will put 10% of the property’s value in a savings account held by your mortgage lender. They’ll get the money back (plus interest) after a set period of time, providing you’ve kept up with your mortgage payments.
Could a 100% mortgage be right for you?
See what options are available to you from across the market, including budget-boosting schemes, by completing your mortgage options with Tembo. It’s free, takes minutes, and there’s no obligation.
