Skipton’s 100 per cent mortgage should be replicated, not feared

Bob Hunt

Bob Hunt

24 May 2023
First of all, hats off to the Skipton Building Society whose PR department will I suspect be somewhat ‘cock-a-hoop’ at the media cut-through their 100 per cent loan to value (LTV) mortgage has received.

This was always likely to be the case given the significant bridge that appears to have been crossed with the launch of this proposition, given it does not require any parental/family involvement and genuinely appears to be the first of its kind for many a year. 

Indeed – and advisers will know better than me – you’ll need to go back to ‘credit crunch’ times to find anything similar. Given the significant amount of water that has flowed under all our bridges since then, I understand why this has received the media coverage it has. 

The numbers in private renting have more than doubled since 1981 with many paying high rents which could be ‘turned’ into mortgage payments hence the Skipton idea. To be candid, it’s not as if all the other schemes currently available are capturing the imagination or helping solve the problem.  

The fact the government is said to already be considering a replacement for Help to Buy perhaps tells its own story here.  

A new and distinct mindset 

So, what are we to make of it?  

Already, I’ve seen a few comments suggesting, ‘Here we go again’, with the underlying argument that such products take us back on a rollercoaster ride which ultimately ends at the same point in history as we did back in those dark days of 2007/08 and those that immediately followed. 

Of course, this doesn’t reflect everything that has happened in between. I think we would all agree the mortgage market is some way removed from that period, albeit I understand a sense of nervousness about the ‘return of 100 per cent LTV mortgages’ because it’s unlikely Skipton will be the first and last lender active in this space.  

Neither should they. 

Now, we can clearly point to several tangible differences with this product compared to those once available, not least who they will be available to, and the affordability criteria and underwriting process prospective borrowers will need to go through to be accepted. 

This Track Record mortgage has a specific focus on those currently renting, with mortgage payments not being more than the average of the last six months’ rental costs, experience of paying household bills for 12 months in a row being required, no opportunity to buy a new-build flat and no missed payments on debits or credit commitments over the last six months. 

In that sense, I think it’s easy to discern this is not a typical 100 per cent LTV product of 15-plus years ago. It comes with robust measures that need to be met by the borrower, plus of course there is a demand here, with a significant number of would-be purchasers who – without recourse to the Bank of Mum and Dad – have little or no chance of saving the sort of deposit required to get on today’s housing ladder.  

Plus, on top of this it’s not going to be in Skipton’s interest to be anything less than fairly cautious in terms of its loan approvals and – perhaps at least initially – the amount of funding it puts aside for it. 

Met with skepticism

However, I’m also not immune to the sense of unease some might have about 100 per cent LTV mortgages returning in any meaningful way, particularly in a house price environment which has seen falls as this might present some negative equity ‘issues’ for borrowers in the immediate future. 

Of course, the fact this is a five-year fixed rate term may well negate some of this potential risk, if – as some are predicting – prices begin to move upwards again next year. There are no guarantees, and I note from the Skipton product marketing that it is being very upfront about the higher risk of negative equity and what that could mean for borrowers. 

And perhaps here is the rub.  

As an industry I think we’re all much more comfortable with the ‘skin in the game’ approach to mortgage borrowing, particularly if mortgage payments are matched to previous rental ones. Without a deposit, and with house prices potentially having fallen, will a 100 per cent LTV borrower simply feel far more able to walk away from such a commitment if they’ve just been paying the same amount for housing costs as they did while renting? Might it just feel like glorified renting – ‘Renting+’ perhaps? 

History tells us there is a greater propensity for non-deposit borrowers to feel less committed in terms of their mortgage payments and more willing to walk away if they feel there are fewer financial issues for them in doing so.  

That is clearly not an outcome anyone wants – it does have implications for them and their credit records/status, plus first-time buyers as a whole, lenders involved in this market, and any adviser who might well have recommended this product. In a ‘new’ Consumer Duty mortgage advice and lending world, that is something to be particularly mindful of.  

However, I will be watching this space with interest because there’s no doubt that bridging the gap between renting and homeownership is going to be a key battleground both societally and politically for many years to come.  

We should all expect – and perhaps demand – further innovation in this important part of the market. 

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Paradigm Mortgage Services LLP is a Limited Liability Partnership.