Are Deposit-Free Mortgages an Indicator That, As a Society, We are Used to Living with Risk?

By 17 May 2023 December 1st, 2023 No Comments

Last week the housing market saw 100% mortgages make an unexpected return after being absent for 15 years. Skipton surprised buyers and lenders alike by announcing their Track Record Mortgage service. It is the latest indicator that, as a society, we are being forced to live alongside risk. Albeit a way to break the rental cycle and allow renters to get their foot on the property ladder, it comes with the genuine danger of negative equity. Arguably this is a step backwards in protecting consumers’ finances.

At UTP, we have dedicated ourselves to protecting our customers from risk. We created UTP Shield to give our customers enhanced fraud protection. The free software protects customers from both potential fraud and chargebacks. Offering a high degree of security to our customers and their finances was imperative. It will be interesting to see whether any counter services are provided to consumers to both break the renting cycle and protect the consumer’s investments from negative equity.

Monthly Rent On a Newly Let Home Outside London Has Passed £1,000 for the First Time

People across the country have been priced out of the property ladder. Unless you have financial support from family or have been able to live at your family home for a nominal rent, it is virtually impossible to save enough for a deposit. With many lenders requiring a 10% deposit, it becomes increasingly difficult for those who are renting or do not have help from loved ones to afford this lump sum. Once in the renting cycle, it becomes virtually impossible to get out of it, with some renters paying more in rent than they would in mortgage payments if they owned the house.

This, combined with increasing food prices, recent energy price hikes, and bills like Council Tax, make it unlikely that renters will be able to save as they try and survive a climate of prices climbing. Estate agent Hamptons has reported that the average monthly rent on a newly let home outside of London has passed £1,000 for the first time. This finding indicates how debilitating rent can be on finances and the ability to save for a deposit.

A Deposit-Free Mortgage Provides Much Needed Relief to Trapped Renters

Into the ring came Skipton. They are the first lender since 2008 to re-introduce deposit-free mortgages. A scheme created to lend money to customers who can prove they have an excellent track record of paying rent on time. Of course, there is an eligibility criterion that customers must meet. To qualify, customers must be over 21 years of age, have evidence of a minimum of 12 months of on-time rent payments, and they must not have any missed debit or credit payments in the past six months. Additionally, customers cannot have the equivalent of a 5% deposit in savings.

Similarly to traditional mortgages, what customers can borrow will depend on both their incomes and the current interest rates, which at present sit at around 5% on average. Not only this, but customers cannot borrow more than £600,000 and are locked into a 5-year fixed interest rate of 5.49%, higher than the current average. Moneyfacts has reported that the average interest rate currently sits at 4.97%, making Skipton’s 5.49% significantly more expensive.

8 in 10 Tenants Feel ‘Trapped’

Skipton’s mortgage solution is seemingly a response to their findings that more than a third of renters are unable or struggling to save because of rising rents. Charlotte Harrison, Skipton’s interim CEO of home financing, has discussed the recent product. Harrison said, “We need to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home”.

In recent years, amidst a global pandemic and the current cost-of-living crisis, house prices have skyrocketed. The Independent reported that 8 in 10 tenants feel ‘trapped’ by expensive rent that inhibits their deposit savings during a time when house prices are 18% higher than they were two years ago.

The Risk of Negative Equity

However, in April, Halifax’s index reported that house prices decreased by 0.3%. Perhaps indicative of the housing market cooling down and this being the beginning of the return to lower house prices. This is what is worrying customers and industry experts. If people strike now while the iron is hot, there is a higher risk of negative equity. By having a deposit-free mortgage, Skipton’s customers may find their house being worth significantly less than they paid for it.

Lenders Have Weighed In on Skipton’s Timing Releasing Deposit-Free Mortgages

Jamie Lennox, director of Dimora Mortgages, has commented on Skipton’s latest announcement and the timing of the deposit-free solution. Lennox noted the announcement seemed “oddly timed while there is such uncertainty around the outlook for the housing market and what will happen with house prices”. Graham Cox, the founder of Self-Employed Mortgage Hub, spoke on the 100% mortgage with a similar sentiment to Lennox. Cox commented, “We’ve learnt nothing from the global financial crisis”. He reports, “The grave danger is that borrowers will overextend themselves. The slightest fall in house prices – and I believe they’ll fall significantly fall over the next 12-18 months – will leave homeowners in negative equity. Not a great place if your income drops and you need to sell”.

It seems that Skipton is not trying to mislead customers and downplay the risks involved in deposit-free mortgages. On Skipton’s website, they do report that customers with little or no deposit face a ‘higher risk’ of negative equity. It places the onus on customers whether they want to live with the risk to reap the rewards of owning their own homes and escaping the trap that renting can be.

A Solution The South East Can’t Share

The amount you can borrow with Skipton’s 100% mortgage product is Limited. It cannot equate to more monthly than you currently pay in rent each month.  If your current rent is £1,000 per month, you could borrow £163,000 for a 25-year mortgage. However, this mean the scheme is only accessible to certain parts of the country.

Richard Donnell, executive research director at Zoopla, commented on how customers in different parts of the company could utilise the product in vastly different ways. For parts of the country where house prices are so high, for example, in London and the South-East, the deposit-free mortgage will not be able to be used by customers as it is simply not enough of a helping hand for customers to afford property prices. Donnell calculated that in North-East where the average property is worth £107,869, couples need a combined income of £38,000 to qualify for a deposit-free mortgage. However, in the South-East, couples need a joint income of £138,750 to afford the average home price of £307,447.

Consumer Champion Martin Lewis Shares his Thoughts

Consumer confidante Martin Lewis has commented on the deposit-free mortgage being a sensible option for certain customers and situations. Lewis wrote on his website MoneySavingExpert.com, “Before the 2007 financial crash, banks would simply throw mortgage loans out to anyone walking past a branch window; now we need to be more careful. So Skipton Building Society’s criteria of requiring a good rental track record to prove someone can make mortgage payments is sensible, and so I cautiously welcome it, done carefully, after advice, as an option”.


Deposit-free mortgages are not a one size fits all solution. Individual circumstances, geographic location, and desired duration in the property will inevitably play a huge role in whether it is the correct solution for you. One thing remains clear. We as a society have had to leave the door ajar to financial risk to cope with astronomical house prices and a renting system that, for generations, has paralysed consumers from being able to save the deposit needed to get onto the property ladder.