The return of the 100% mortgage

Skipton Building Society has launched the UK's first 100% mortgage since 2008. Squarely aimed at current renters, it will give hope to many, but could it affect the housing market?

Following days of persistent rumours, Skipton yesterday issued the press release. Yes, they are launching their Track Record mortgage, offering 100% loans to help renters "break out of their trapped rental cycles and onto the property ladder".

The basic principle behind this mortgage is that Skipton will lend up to 100% of a property's value to first time buyers who can demonstrate a good track record of rental payments, show evidence of affordability and pass credit reference checks. Monthly repayments will be limited to the average rent paid over the last six months, in turn governing the size of the loan.

All offers will be on the basis of a 5 year fixed rate mortgage and will be available without the need for guarantors. It will be available only to current tenants aged 21 or over.

How might the housing market react?

New housing supply is severely constrained. The number of homes being built in the UK is currently in sharp decline, with completions this year expected to fall by 30 to 40% from recent norms. Planning applications are at an all time low.

Skipton's market share is small. It is safe to assume that the Track Record mortgage will represent a very limited part of their total loan portfolio. On its own, it will not move the market. However, if the major lenders follow Skipton's lead, there will likely be an uplift in demand from first time buyers. The unknowns are by how much and for how long.

Some commentators have referenced the free-for-all mortgage market which preceded the global financial crisis. However, 2008 was a lesson learned and stricter bank lending rules will prevent 100% mortgages becoming the norm once again.

Nevertheless. first time buyers are the base upon which the housing market is built, allowing second steppers to move and so on up the price chain. A small stimulus in the FTB market has a multiplier effect which should not be underestimated.