Deposit-free mortgage aimed at renters launched

A deposit-free mortgage specifically aimed at people currently renting has been launched by a UK building society.

While a handful of other no-deposit deals are available, they all need the financial backing of family or friends.

Skipton Building Society says while its deal requires 12 months of on-time rental payments and a good credit history, it does not need a guarantor.

A campaign group said while no-deposit deals could help buyers, the lack of affordable homes remains a key problem.

Generation Rent, which campaigns on behalf of private renters, says the shortage of properties within the budget of first-time buyers remains a major stumbling block for those struggling to get on the property ladder.

First-time buyers are facing an uphill battle. Rapidly rising rents have made saving for a deposit increasingly difficult, at the same time that the government’s flagship Help to Buy scheme, which ran for more than a decade and helped more than a quarter of a million first-time buyers, is no longer open.

Since the financial crisis in 2008 there have been very few 100% loan value mortgages available. Currently there are 15 other zero-deposit products on the market, according to financial data firm Moneyfacts, accounting for just under 0.3% of the UK market.

The new five-year fixed-rate mortgage from Skipton Building Society is distinctive from those existing products by not requiring a guarantor and is only for people currently renting a property. However, at 5.49% the interest rate is more expensive than the average five-year fix of 5%.

The Skipton, which is the UK’s fourth biggest building society, says it recognised a “gap in the market”.

Stuart Haire, the society’s chief executive told the BBC that “until now there has been no solution for them [renters] to buy a property due to a lack of savings or access to family wealth”.

David is renting with his partner and new baby in North Yorkshire. “It’s getting that deposit together that’s really difficult with rent prices.” admits David. “In an ideal world we’d buy, but it’s not possible.”

“If I can prove I’ve been paying rent for the last 10 years of my life why can’t I have a mortgage.”

And David is not alone. Mortgage expert Andrew Montlake believes there is demand for a product like this, which provides another option for people stuck in the rental market. He thinks it will “help some people get onto the property ladder”.

But many renters dreaming of a home will still be unable to get their hands on one of these mortgages. Even if someone has 12 consecutive months of good rental history, they still have to pass credit and affordability checks, ruling out many with CCJs or a poor credit rating.

It is also difficult at the moment to find an affordable property to rent to build that track record. Demand for rented accommodation has soared to more than 50% above normal levels according to Zoopla.

“It’s not necessarily going to help all the people who are looking to buy a first-time home if there aren’t more houses available to buy,” says Will Barber Taylor from Generation Rent.

But, he adds, “it would need to be in combination with other factors to make it effective”.

The government’s Help to Buy scheme saw the Treasury lending homebuyers between 5% and 20% of the cost of a newly-built home, and up to 40% in London. Between April 2013 and September 2022, 375,654 homes were bought using a Help to Buy loan.

The scheme closed to new applicants in October 2022, but there are rumours that something along similar lines could be re-introduced. Housing Minister Michael Gove has said all policies to help first time buyers are “under review”.

But a rise in zero-deposit mortgages may not be welcomed by everyone, as riskier mortgages with a high loan to value were a root cause of the 2008 financial crash.

“I know you’re naturally going to get comparisons to what happened last time (in 2008),” says Mr Montlake. “But that was a maverick mortgage market where lenders were just interested in volume rather than quality.”

“The world is very different now,” he says, and adds that his opinion has changed over the past 15 years, as long as the 100% loan value mortgages are “underwritten sensibly”.