100% mortgages laudable but have very real risks

19th May 2023
David J Alexander

In his latest column for The Scotsman, David Alexander shares his opinion on the new 100% mortgages proposals from building societies.

There will have been many first-time buyers cheering at the recent announcement by the Skipton Building Society that it was starting to offer 100 percent no-deposit mortgages. The plan is designed to provide a lifeline to tenants by offering them a mortgage broadly in line with the rent they have been paying for the last year, therefore enabling rent payers the opportunity to transfer their monthly payments toward buying a house.

This is the first time that a 100 percent mortgage without guarantors has been launched since the financial crisis in 2008. It will address the anomaly that many renters feel, which is that if they can afford to pay £1,000 a month in rent then they should be able to afford to pay £1,000 a month in mortgage payments.

While this sounds like a welcome attempt to assist tenants to buy a home there are very real risks associated with this product. Buying at a time when prices are static or even falling in some areas creates the risk of negative equity for these new homeowners.

There is also the obvious point that home ownership carries higher costs than renting as maintenance and repair costs, house insurance, and potential interest rate rises are all borne by homeowners which tenants don’t have to think about. If widely adopted, this could result in a housing boom which would be inflationary, potentially leading to higher property prices which could strain buyers on a tight budget. The worst-case scenario would be to replicate the boom and bust of 2008 which nobody wishes to repeat.

Want to hear more of what David thinks on the subject? You can read the column in full, here.