The vulnerability of the financial system has been brought into question during financial crises, in 2008 one, the fact that people could buy homes without any savings, or income, with so-called NINJA loans, is cited frequently as one of the major sources of the collapse that impacted so many of us.
However, figures from across the economy suggest that it is now more difficult than ever to get onto the property ladder, in the UK, a building society called Skipton has come up with an alternative.
The Features of Skipton’s Deposit-Free Mortgage
UK-based Skipton Building Society has launched a deposit-free mortgage specifically targeting renters. Unlike other no-deposit deals that require financial support from family or friends, Skipton’s offer only necessitates 12 months of timely rental payments and a good credit history, with no need for a guarantor. However, the interest rate of 5.49% is higher than the average five-year fixed rate of 5%.
While Generation Rent, an organization advocating for private renters, acknowledges the new mortgage option, they argue that the lack of affordable properties for first-time buyers remains the primary obstacle to homeownership, see Skipton launches deposit-free mortgage aimed at renters – BBC News
The Rise of Zero-Deposit Mortgages in the UK Market
There are currently 15 other zero-deposit products in the market, as per financial data company Moneyfacts, making up just under 0.3% of the UK market. With the government’s Help to Buy scheme for first-time buyers no longer open, and rapidly rising rents making it harder to save for a deposit, first-time buyers face significant challenges.
Skipton Building Society, the UK’s fourth largest, identified a “gap in the market” and designed this mortgage offering. The society’s CEO, Stuart Haire, explained that until now, renters had no viable solution to buy property due to insufficient savings or lack of access to family wealth.
While the return of zero-deposit mortgages may raise concerns, given their role in the 2008 financial crash, the landscape is very different, it may be that lenders will place a greater emphasis on credit ratings to ensure that their portfolios do not become vulnerable. Interesting times ahead!
If you found this article on Skipton Building Society’s deposit-free mortgage for renters informative, you may also be interested in our previous post titled “Exploring the Consequences of an Approaching Credit Crunch for the American Economy.” In that article, we delve into the potential impact of a credit crunch on the US economy and explore the measures that can be taken to mitigate its effects. Check it out to learn more!