One of the UK's major mortgage lenders has revealed it is developing a product which could enable hundreds of thousands of renters to buy a home without raising a deposit.
Skipton Building Society has revealed this morning that it is hoping to launch a new style of home loan that would enable would-be borrowers to sidestep normal minimum deposit rules by providing evidence that they have successfully met rental payments for a considerable time.
However, the new product would have to have the blessings of the Prudential Regulation Authority and the Financial Conduct Authority, which are both anxious to prevent banks and building societies lending at high loan-to-value ratios.
Helping those 'trapped in rent'
In general, lenders require borrowers to come up with a minimum deposit of around 10% of the purchase price, which leaves huge numbers of renters unable to raise the cash and thus permanently stranded in rented accommodation, according to Stuart Haire, Skipton’s new chief executive.
“We’re looking at how we can build a product that can help those people trapped in rents,” he told The Times this morning.
“We recognise that ultimately, if you’re going to end up paying more in rent than you would on a mortgage, that feels like a good mortgage loan, particularly if you can prove that [you can meet mortgage bills] over a period of time.”
While many first-time buyers were able to tap their parents for a deposit, others were not, Mr Haire said, even though they may have a very strong record of paying rents on time.
The new product was “trying to find a way around these orthodoxies”, he said.
Lessons from the past
Any attempt to reduce deposit requirements could be controversial, as in the past borrowers have got stuck in so-called negative equity, unable to sell their homes in falling markets because the sale value of the property is less than the loan amount.
In the last banking crisis, notoriously Northern Rock required no deposits and offered loans of up to 120% of a property’s value.
Skipton, which has yet to publish full details, is confident it can address such concerns and it hopes to launch the new product within weeks.