Your bank isn’t doing you a favour by offering you a 100% mortgage, says HELEN CRANE

Skipton Building Society has caused a stir by launching a 100 per cent mortgage for tenants struggling to get up the housing ladder.

That’s right – a lender will now let you borrow the value of a home in its entirety, provided you’ve paid a record 12 months’ rent and passed affordability checks.

Mortgage brokers hail the move as a ‘masterstroke’ and even ‘revolutionary’.

But I would encourage first-time buyers to ask not what your mortgage lender can do for you, but what you do for your mortgage lender.

Skipton says he is concerned that tenants cannot move up the housing ladder and wants to “provide solutions to such a huge social problem.”

That may be true, but – as with the mortgage brokers mentioned earlier – it is secondary to the desire to continue making large amounts of money from lending people mortgages.

This is something that has become more difficult for banks and building societies in recent months.

Skipton hardly does his customers a favor. Where was the 100 percent loan in 2021, when the housing market was booming and first-time buyers armed with savings clamored to join?

At the time, most lenders took their starter mortgages off the market—or raised rates to such staggering heights that they might as well have done.

People with small deposits of only 5 or 10 percent were too much at risk, and with middle-class pandemic movers banging on their doors to mortgage their huge new homes in the countryside, lenders frankly didn’t need them.

But these days, lenders need first-time buyers — so much so that they’re willing to lend them the full price of their property to get them hooked. It’s something that hasn’t been offered since the financial crisis – just think about that for a second.

Why the desperation? Well, the housing market is still reeling from the impact of Liz Truss’ disastrous mini budget, which sent mortgage rates soaring. According to Zoopla, by the end of 2022, there was a 50 percent drop in demand from homebuyers.

Mortgage interest rates have now fallen slightly, but remain about twice as high as last year at this time.

This has led to a drop in the number of people wanting to move, which is not good news for businesses that make money from mortgages.

The average five-year fixed mortgage rate is now 5.05 percent, and for those with large deposits there are cheaper deals available at rates below 4 percent – but that’s still not enough to get the market moving. was last fall.

The interest rate on Skipton’s 100 percent mortgage is even higher, at 5.49 percent, and is fixed for five years. If you were to buy the average house priced at £286,896, that would mean a monthly mortgage payment of £1,790.

To be fair to Skipton, it limits the maximum mortgage payment to the same amount as the borrower’s current rent.

But even if a first-time buyer can afford the repayments, there is still the risk of negative equity, preventing them from relocating or taking out a new mortgage in the future.

House price charts are currently fluctuating between rises and falls, and where they will end is anyone’s guess. Just a few months ago, some people predicted a drop in house prices of up to 20 percent over the next few years.

With substantial house price falls now less likely, but still entirely possible, I’d advise anyone considering taking out one of Skipton’s loans to check in with someone who took out a 100 percent mortgage the last time they were in their mid-s ninety were available. Some have still not been able to pay off their loans.

Let’s not forget that we are also still in the midst of a cost of living crisis, with skyrocketing bills and household budgets being squeezed in all directions.

Not the kind of time, I’d say, that you want to take out a mortgage for the full value of a home.

But today’s 20s and 30s are used to taking on huge debts in return for getting ahead in life, and the implication is often that they don’t have to worry about that – at least in the short term.

Suppose you have passed your exams and want to go to university. That’s £9,000 a year, please – but don’t worry about it, you can pay it off later. That’s fine, until you get your first pay package and realize you’re being charged 6.9 percent interest.

The same applies when you come to buy your first home. Why not take out a Help-to-Buy Loan – rumored to be coming back now?

You may never sell it for the amount you bought it for (since new construction tends to depreciate in the first few years) and you end up paying back the government much more than you borrowed – but that’s a problem for the future.

It’s no wonder they don’t think about buying a new pair of shoes on Klarna or putting a vacation on a credit card – that’s just a drop in the ocean of their massive sea of ​​debt.

Of course hardly anyone can afford to buy a house without taking on any debt – but I worry that today’s new borrowers are being encouraged to take out loans with extremely high debt without thinking about the potential implications.

As a final consideration, I’d like to know how many of those on Skipton’s top team moved up the housing ladder in the late 1990s or early 2000s, when the average house cost “only” four times the normal salary.

As of January this year, that figure had risen to 9.1 times, according to research by asset manager Schroders. All the more reason to think carefully before you take out a loan for the full blow.

As a renter of a pretty impressive vintage, I understand the desperation to have a place you can call your own.

But I would urge anyone considering a 100 percent mortgage to ask themselves: At what cost?