The introduction of 100% mortgages has sparked a debate among UK property investors. Some view it as a positive development, while others raise concerns about its potential impact on the market. In this blog, we will explore the pros and cons of 100% mortgages, particularly focusing on Skipton Building Society’s Track Record Mortgage, to evaluate whether it is a beneficial option for UK property investors.
Will property investors be impacted by 100% mortgages?
Skipton Building Society offers a unique Track Record Mortgage designed for property buyers who meet specific criteria: first-time buyers aged 21+ with no missed payments on debt/credit commitments in the past 6 months, looking to borrow up to £600,000. Other essential requirements include meeting the household-to-household criteria and having proof of rent payment for the last 12 months. Property investors who already own a house will be ineligible, but they’re set to experience indirect impacts.
Will 100% mortgages address the imbalance in the housing market?
The current low homeownership rate among young adults necessitates a correction in the housing market. With only 24% of 24-35-year-olds having a mortgage or owning their homes outright, introducing 100% mortgages can help more people get on the property ladder and stimulate the housing market.
Are 100% mortgages likely to cause another financial crisis?
Contrary to concerns about similarities to the 2007-2008 financial crisis, it is important to note that lending practices have evolved significantly. Lenders now exercise affordability due diligence to mitigate the risk of giving out unaffordable loans. Skipton Building Society’s Track Record Mortgage includes additional stress tests, such as one-year proof of rent payment, good credit history, and mortgage payments that are equal to or less than the buyer’s current rent.
What are the pros of Skipton Building Society’s 100% Mortgage:
- Quick Home Purchase: Buyers can enter the property market swiftly, avoiding potential price increases that might otherwise make homeownership unaffordable.
- Savings on Initial Outlay: With no stamp duty payment required, buyers can save significant money in the initial stages of homeownership.
- Flexibility for Renovations: Any savings accumulated can be utilised for renovations and furnishing, allowing buyers to personalise their new homes.
- Market Stimulation: With more individuals able to purchase homes, the housing market is expected to experience increased activity, potentially leading to price appreciation.
- Reduced Risk of Negative Equity: The existing housing shortfall in the UK acts as a safeguard against a market crash, reducing the likelihood of negative equity for homeowners.
What are the drawbacks of Skipton Building Society’s 100% Mortgage?
- Decreased Demand For Rental Property: With the return of 100% mortgages in the UK, buy to let landlords may be concerned that this could lessen rental demand in 2023. It is important to note that while these mortgages may make it easier for people to get on the property ladder, there are drawbacks that may be off-putting to first time buyers that are explored in the next two points.
- Higher Interest Rate: The interest rate for this mortgage product is 5.49%, which is relatively higher compared to other available options in the market.
- Potential Limitations: Monthly mortgage costs restricted to match previous rent payments might lead to first-time buyers having to settle for a lesser home than what they currently rent. For example, a £200,000 home would have a monthly mortgage payment of £1241.27. Considering that the ‘average’ house price is £288,000, the options for first-time buyers using this method will be limited and those in more expensive areas may struggle to find a home in their price range.
Does the return of 100% mortgages provide risk or opportunity for UK property investors?
After evaluating the pros and cons of 100% mortgages, particularly focusing on Skipton Building Society’s Track Record Mortgage, it becomes evident that the return of 100% mortgages provides a compelling opportunity for UK property investors. While there were initial concerns about the potential risks and impacts on the market, a closer examination reveals that the benefits outweigh the drawbacks.
One of the significant advantages of Skipton Building Society’s 100% Mortgage is the ability for buyers to enter the property market swiftly, avoiding potential price increases that could make homeownership unaffordable. Additionally, the exemption from stamp duty payment allows buyers to save a substantial amount of money in the initial stages of homeownership, providing them with more financial flexibility.
Furthermore, the introduction of 100% mortgages addresses the pressing issue of the low homeownership rate among young adults, stimulating the housing market and creating a more balanced landscape. By enabling more individuals to get on the property ladder, these mortgages contribute to a healthier housing market and foster economic growth.
Overall, with the huge supply and demand imbalance faced by the rental market, there is unlikely to be a mass exodus of first-time buyers from the rental market therefore the impact on investors will be negligible.
While concerns about another financial crisis may arise, it is crucial to recognise the evolution of lending practices. Lenders now exercise rigorous affordability due diligence, ensuring that loans are granted responsibly. Skipton Building Society’s Track Record Mortgage includes additional stress tests, such as proof of rent payment, good credit history, and manageable mortgage payments, mitigating the risk of unaffordable loans.
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