Deposit-free mortgage: How it works and how you can apply

Skipton Building Society offering ‘trapped’ renters chance of escape without need for support from wealthy guarantor but campaigners warn housing shortage an underlying problem

A UK lender is offering the first deposit-free mortgage for first-time buyers since the financial crash of 2008 in order to help aspiring property owners escape “trapped rental cycles”.

Skipton Building Society has announced its new five-year, fixed-rate Track Record Mortgage, which will enable those who are seeking to buy a first home – but lack the capacity to save up for a deposit – to borrow the entirety of a property’s value.

To apply, customers must be aged 21 or over and will be required to present proof of at least 12 months of on-time rental payments and a good credit history. But, crucially, they will not require a guarantor, differentiating the mortgage from other zero-deposit deals on the market (there are 16 of these including Skipton’s, according to Moneyfacts, which means they account for just 0.3 per cent of offerings from lenders).

Skipton’s mortgage does come with an interest rate of 5.49 per cent, however, which is above the 5 per cent typically affixed to five-year deals.

Swiftly climbing rents over the past few years have made saving for a deposit difficult for many, with demand for rented properties 50 per cent above the five-year average at present, according to Zoopla.

Skipton estimates that there are 4.6m households renting privately across England just now, representing a 112 per cent increase on 2000 levels. Some eight in 10 tenants report feel “trapped” by extortionate rents that prevent them saving for a mortgage at a time when house prices are 18 per cent higher than they were two years ago anyway.

Those who were able to save enough for a deposit put down an average of £62,270 in 2022, Halifax data published in January this year has indicated, representing an 8 per cent increase year-on-year.

Those difficulties have coincided with the government’s Help to Buy scheme drawing to a close in October 2022.

That initiative ran between April 2013 and last September and saw the Treasury help first-time buyers with the cost of between 5 per cent and 20 per cent of a newly-built home and up to 40 per cent in London, ultimately assisting in the purchase of 375,654 properties over the course of its decade in action.

There is speculation that the scheme could be reopened or revived in another form but at present no such policy has been confirmed.

While Skipton’s new offering is likely to appear an attractive alternative for many, campaign groups such as Generation Rent have warned that a lack of affordable housing in Britain remains a major underlying problem.

“It’s not necessarily going to help all the people who are looking to buy a first-time home if there aren’t more houses available to buy,” said the group’s spokesman Will Barber Taylor.

“It would need to be in combination with other factors to make it effective.”

Charlotte Harrison, Skipton’s CEO, said of the new product: “We know there isn’t one quick solution to addressing this huge societal challenge of tenants being trapped in renting cycles, with rents escalating faster than mortgage payments and the increasing costs of living, but doing nothing isn’t going to solve this UK housing issue.

“We know this product will not be able to help everyone and is only part of the solution for this group of people, but as a lender, we’re taking a stand to offer innovation in this space to help turn generation rent into generation buy.”

Full eligibility criteria on Skipton’s Track Record Mortgage is available on the building society’s website, which also includes a calculator to help renters work out the maximum amount they could borrow based on their average rental payments from the past six months.