Saving a deposit takes time. Sometimes, a long time. And that’s hella annoying when you just want to buy a home already. But what if you could skip the deposit part and breeze straight through to homeownership?
Skipton recently launched a 100% mortgage for first-time buyers. You can take out a full loan on the home you want to buy — no deposit needed. According to MoneyFacts, there are 15 zero-deposit mortgages on the market rn (May 2023) but the recent buzz around them could mark the beginning of a major comeback.
Now you’re maybe wondering why we, Nude, an app that helps you save for a deposit, is shouting about a mortgage that requires no deposit. And the answer is this: If there’s something first-time buyers need to know about, we’re going to share it with you.
So here are the upsides (and downsides) of a 100% mortgage.
The 👍 of a 100% mortgage for first-time buyers
Fast-track to homeownership
Less time saving for a deposit. Less money spent on rent. You could go straight into paying off your own mortgage and living in a home that’s actually yours 🥂
100% mortgages could make homeownership more accessible
Not everyone has access to the bank of mum and dad. And with the current cost of living crisis, not everyone can put money aside for a deposit. 100% mortgages can break down some of those very high barriers to homeownership.
The 👎 of a 100% mortgage for first-time buyers
Paying interest on a 100% mortgage
When you take out a mortgage, you’ll pay back the total value of your home, plus a percentage of your loan on top. This is called “interest” and it’s how lenders make money.
Now, you only pay interest on the amount you borrow. So, if you put down a 20% deposit, you’d only pay interest on 80% of the property value. But with these 100% mortgages? You’re paying interest on the whole thing.
Higher monthly repayments
Because you’re paying back 100% of the loan with interest — your monthly repayments could be much more than if you were to put down a deposit.
You might have to reduce your budget
If you’re buying with a 100% mortgage, you’re applying for a bigger loan.
Let’s look at an example 🏠
Sarah wants to buy a home that’s £230,000 with a 100% deposit. Her lender will calculate if she can afford repayments on £230,000. If she was to apply with a £30,000 deposit, her lender would calculate if she could afford repayments on £200,000.
With a 100% mortgage — if you’re looking to buy a home on the higher end of what you can afford — there’s the risk that a lender may not approve you for the full amount you need.
Dictated by rent
Some 100% mortgages need evidence that you pay a certain amount of rent on time every month, if you’re a renter. But how much your rent costs can dictate how much you can borrow – and it sometimes doesn’t amount to enough to actually afford a house in your area.
Let’s talk about Skipton’s 100% mortgage for first-time buyers
This information was last updated on: 22nd May 2023
Everyone’s talking about Skipton’s new 100% mortgage — it’s specifically designed to help renters take their first step onto the property ladder. Here’s what we know so far…
Who can apply 👀
There are some rules around who will be approved for Skipton’s 100% mortgage.
You must be:
- A first-time buyer
- 21 or older
- Paying rent
- Not looking to buy a new build flat
- Looking to buy a home that’s worth no more than £600,000
You must have:
- Proof of on-time monthly rental payments, up to 2 years
- No recent history of missed payments (on credit, debt, household bills etc)
- NOT saved more than a 5% deposit already
On top of all this, you have to meet the usual affordability and credit checks that come with applying for any mortgage.
👛 It’s technically like a 96%–100% mortgage
Only first-time buyers with a deposit smaller than 5% of the property they want to buy can apply for Skipton’s 100% mortgage.
This means, you could still put down a small deposit towards your home, if you like. As long as it’s lower than 5%.
💡 You could still use your Lifetime ISA with Skipton’s 100% mortgage
Let’s say you want to put down a 3% deposit, you could still use your LISA savings and the bonus to do that (as long as the home you want to buy is below £450,000 and you’ve had your LISA open for at least 12 months).
💰 Skipton base your mortgage on your monthly rent
If you can pay rent to your landlord every month, what’s the difference in paying that to a bank instead?
With their 100% mortgage, you have to provide up to 2 years’ of rental payments to show how much you’re paying every month. This isn’t just for affordability checks, they’ll actually base your mortgage on this amount.
So if you’re paying £1,000 on rent each month, your monthly mortgage repayments would also have to be £1,000 or less.
This is good news from an affordability perspective — you know you can afford to pay this. But, for people who want to buy a bigger property, or move somewhere more expensive, or move out of shared accommodation, it can be a downside.
P.s. Skipton isn’t one of our partners or anything, and we’re in no way affiliated with them, but their 100% mortgage is a hot topic and we want to do our part in keeping you informed.
Whether you want to save a small deposit you could use with an 100% mortgage, or the thought of paying interest on 100% of a property makes you want to throw up, you can save for your first home with Nude.
We know how frustrating it can be when you want to buy a home but you have to spend time renting or living at home while you save for your deposit, which is why we built an app designed to bring that time down.
- Time to Buy — Track your progress by how long, not just how much
- Lifetime ISA — Get up to £1,000 bonus towards your home every year
- Ideas — Money-saving ideas and challenges, personalised to you
- Team Up — The hassle-free way to save for a home together
- Gift Link — Friends & family can send you money for your first home
- Monthly Giveaways — Win £££ towards your first home in the Nude app