Conroy, 32, and Amber, 28, previously believed they would be renting indefinitely in central Manchester. However, they discovered a type of mortgage called the Track Record mortgage from Skipton Building Society, which allows borrowers to cover 100% of a property's value without an upfront deposit. This mortgage requires borrowers to meet strict eligibility criteria and pay a higher interest rate; in their case, it is fixed at 5.33% for five years. In August, they purchased a four-bedroom home for £242,000 in Swinton, Manchester.
According to the Bank of England, the share of UK mortgages with deposits less than 10% of the property's value is currently the highest since 2008, when such loans were common. The average deposit for first-time buyers is around 20%. Lenders like Lloyds, Santander, Skipton, and Yorkshire Building Society have introduced new mortgage options covering up to 100% of property value to assist first-time buyers amid rising property prices and challenges in saving for a deposit.
However, these loans typically come with higher rates and are not available for all property types or borrowers. Conroy and Amber are aware of the risks associated with their no-deposit mortgage, including the potential for negative equity, which occurs when a property's value falls below the loan amount. They have a 25-year loan with monthly repayments of £1,500, similar to their previous rent. Conroy mentioned they plan to overpay their mortgage to build equity.
Another couple, Bronya, 27, and George, 29, also utilized a low-deposit mortgage to buy their four-bedroom house in Rhuddlan, North Wales, in August. Lloyds provided them with a loan of £258,000, covering approximately 98% of the property's value, with a £5,000 deposit. Their interest rate is fixed at 5.89% for five years, resulting in monthly repayments of £1,400.
Bronya stated they opted for a smaller deposit to allocate funds for a renovation project estimated at over £20,000. They are also aware of the risks of negative equity but believe the renovations will enhance their home's value. David Hollingworth, associate director at L&C Mortgages, noted that today's mortgage deals have stronger affordability checks compared to those leading up to the 2008 financial crisis. Borrowers must demonstrate consistent rental payments and credit history to qualify for these mortgages. Hollingworth advises potential borrowers to consider their monthly payments and be mindful of potential interest rate increases.