A deposit-free mortgage aimed at renters and first-time buyers has been launched by a UK building society, which said it recognised a ‘gap in the market’.
Skipton Building Society has launched the UK’s first 100 percent LTV (Loan to Value) mortgage for renters, which will allow those renting to access the property ladder without a house deposit.
The company says this will help ‘take away the dependency on the Bank of Mum and Dad or guarantors’.
Known as the 'Track Record Mortgage', the deal lets tenants who can provide evidence of affordability for a mortgage borrow up to 100 percent of a property value.
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Available to people aged 21 and above, the five-year fixed rate mortgage is also exclusively for first-time buyer purchases only and is subject to a credit score and proof of 12 months’ ‘good track record rental history’.
According to Skipton, there are 4.6m households renting privately across England, which is more than double (+112 percent) the number recorded in 2000.
Its research found that eight in 10 tenants felt 'trapped' in the rental cycle, paying rental costs that are higher than a mortgage - which in turn preventing them from saving for a deposit to buy their own home.
Meanwhile, house prices for first-time buyers have also risen by an average of 18 percent in the last two years - an increase of £39,680 - with more than one in three (35 percent) struggling to save due to increased rent.
Charlotte Harrison, CEO of Home Financing at Skipton, said: “We need to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home.
“People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our society. With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people get onto the property ladder.
“We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time and can evidence affordability of a mortgage – but there is currently no solution for them to buy a property due to lack of savings or access to family wealth.
"It is time for a re-think on these massive barriers to home ownership, and we’re proud to take the lead on bringing to the market, solutions for such a massive social problem.
“This is why we’re introducing our Track Record Mortgage. It has been carefully created with the challenges generation rent is facing in mind, together with the potential risks and challenges they may encounter in the future too.
"In building our mortgage product with these challenges at the centre we’re ensuring considerations around negative equity have been fully taken into account.”
However, one campaign group has warned that, while the deal could help buyers, the lack of affordable houses remains a huge obstacle for those trying to get onto the property ladder.
Generation Rent, which campaigns for the rights of private renters, said the shortage of budget-friendly properties for first-time buyers is still a huge issue, with Will Barber Taylor from the group telling the BBC: "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.
But, he added: “It would need to be in combination with other factors to make it effective.”
Jess Hardiman