British Renters Can Now Get a 100 Percent Mortgage — Here's How
In the U.K., borrowers will be able to take out 100 percent mortgage loans, which means they don't have to put down a deposit. Here's what we know.
In the U.K., a new mortgage offering will allow qualified buyers to get out of the rental market and into the housing market with zero money down. For renters who want to be first-time homebuyers, the product will make it easier to begin building wealth through homeownership. How can Brits pay no deposit for 100 percent mortgage loans?
When shopping for a mortgage, many potential buyers are eliminated by the down payment requirements. Now, a building society in the U.K. is offering what it calls a "lifeline" to renters who struggle to save enough for a down payment on a home, CNBC reports. Here's how the 100 percent mortgages will work.
What is a 100 percent mortgage?
A 100 percent mortgage is one that doesn't require the buyer to put a down payment on the purchase. Instead, they borrow the full amount of the home's purchase price. Although not every buyer can qualify for a no-money-down mortgage, such programs do exist in the U.S., and the Skipton Building Society is doing the same in the U.K.
In August 2022, Bank of America's no down payment mortgage program launched to expand homeownership opportunities for Black and Hispanic borrowers. The USDA and VA loans offer no-down-payment options as well. According to CNBC, Skipton's 100 percent financing program "Track Record" is the first of its kind in the U.K. since 2008.
What are the benefits of a 100 percent mortgage?
For borrowers, the key benefit of a no-down-payment mortgage is the chance to buy a house sooner than would otherwise be possible. People with sky-high rental payments can't save as much money for a down payment, keeping them trapped in a cycle of renting.
A 100 percent mortgage means the borrower can get into a home and start making payments to build equity. While owning a home isn't a guarantee you'll build wealth quickly, it can offer better living conditions and stop you from being at the mercy of landlords. Plus, staying in a home can build equity, which means you have an appreciating asset.
What are the downsides of 100 percent mortgages?
Paying no money down on a house is appealing, but buyers should remember potential drawbacks. Graham Cox, founder of mortgage advice service Self Employed Mortgage Hub, warned of the danger that buyers may "overextend themselves," reported CNBC.
“The slightest fall in house prices ... will leave homeowners in negative equity, with the property worth less than the mortgage balance,” he said.
In the U.S., buyers who put less than 20 percent down on a house are usually subject to private mortgage insurance (PMI) payments until the loan-to-value ratio is below 80 percent. This can increase the monthly payments for a length of time, although getting to buy a home may be worth it.
Who can get the U.K. 100 percent mortgages?
The Skipton Building Society is an organization much like a credit union (the U.S. equivalent, in which members own the banking organization). Its new product targets first-time buyers who are currently renting. It comes with a fixed interest rate of 5.49 percent for five years, and the maximum term is 35 years.
In 2008, many banking institutions in the U.K. stopped offering 100 percent mortgages due to the financial crisis. CNBC reported that in 2021, several U.K. banks started to offer 95 percent mortgages after a new government program aimed at helping people get into the housing market following the COVID-19 pandemic.
Only first-time homebuyers with certain credit scores will qualify, and loans must pass affordability requirements. Borrowers need at least 12 months of on-time back-to-back rental payments over the past 18 months as well. Skipton says it will ensure the monthly payments aren't higher than the average of the last six months of an applicant's rental costs.
There are a few other requirements:
- Each applicant is over 21
- No missed payments on any debts over past 6 months
- Borrowing limit of £600,000
- Experience paying all household bills
- Not buying a "new build flat"
Does the U.S. have similar 100 percent mortgage offerings?
While 100 percent financing on home purchases isn't necessarily common, there are options for U.S. buyers to purchase a home with no down payment. USDA and VA loans have such programs, and there are also down payment assistance programs in many states and areas. Also, the FHA loan allows buyers to receive a gift of the 3.5 percent down payment.
Just as with the new program in the U.K., buyers who want to purchase a home with no down payment usually have to meet certain need requirements. Many of these programs are only for first-time homebuyers, and they may have to fall within certain income and credit score guidelines. Not making payments could result in losing the home.