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The return of deposit-free mortgages

While borrowers are normally required to cover at least 5pc of the purchase price in deposit, Skipton Building Society is about to launch a new loan that would allow buyers to skip that requirement, marking the return of deposit-free mortgages. The lender plans to use the borrower’s rental payment history instead.

The idea stems from the fact that prospective first-time buyers are increasingly turning away from the housing market because of rising mortgage rates and the withdrawal of the Help to Buy scheme. Soaring rents (by 11pc in just the past year) are also making it harder for tenants to even look into home ownership.

Skipton’s CEO, Stuart Haire, said that deposit-free mortgages would “enable people trapped in rental cycles – where they’re prevented from being able to save for a house deposit – to access the property ladder.” At the same time, experts warn that deposit-free mortgages could bring upon a risk of negative equity, destabilising the banking system and straining the housing market even more.

“This form of debt will likely include an added premium on top of an already elevated cost of borrowing at present,” said Benjamin Trevis, an economist at the Centre for Economics and Business Research. “Moreover, 100pc mortgages can increase the risk of default by borrowers as they are more vulnerable to falls in their own home value.”

These issues have become the battleground for parties in the run-up to upcoming general elections, where Labour has announced it is working with lenders to develop a state-backed scheme, which would help first-time buyers get loans.

Skipton has not yet confirmed their loan-to-value but will look to tackle the potential issues that first-time buyers could face when taking out 100pc mortgages.

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