Tenants – Here’s how much a 100% mortgage will cost you

Skipton Building Society has announced that it will extend its 100% mortgage offering to tenants and existing homeowners in the UK.

However, a new study by property lending experts at Octane Capital shows the monthly expenses that potential borrowers are facing.

The firm looked at the costs for first-time buyers and existing homeowners, compared with having a deposit and obtaining a traditional mortgage.

‘Demand for 100% mortgage products’

Octane’s chief executive, Jonathan Samuels, said: “We’re a nation hell-bent on homeownership and so it’s no surprise that demand for 100% mortgage products has spurred an expansion from first-time buyers to existing homeowners.

“However, it’s a potentially dangerous game to be playing in the current climate while interest rates are high, and uncertainty remains around just when they are likely to come down.”

He added: “As our research shows, the additional cost of a 100% mortgage is substantial and while you may secure a foot on the property ladder without the initial lump sum of a deposit, you will certainly pay for the pleasure in interest owed and then some.”

Strong track record of rent payments

Skipton says it will now allow tenants who have been homeowners prior to the last three years, who can meet affordability criteria – and have a strong track record of rent payments – can borrow up to 100% of a home’s value.

The product was launched in May this year and was initially aimed at renters trying to get onto the property ladder without the ‘Bank of Mum and Dad’ or guarantors.

Charlotte Harrison, Skipton’s chief executive of home financing, said: “We have actively reviewed the product and listened to customer feedback, focusing on how we can develop it further to help more people break free from being stuck in trapped rental cycles.

“I’m proud to announce that we’re expanding the eligibility of the product to include renters who have previously owned a home.”

Skipton first unveiled its 100% mortgage

However, Octane’s calculations show that in May, when Skipton first unveiled its 100% mortgage for first-time buyers, the average monthly repayment stood at £1,458.

This calculation was based on an interest rate of 5.49% over 25 years and the average house price at that time, which was £237,542.

In contrast, a first-time buyer who opted for a traditional lender and placed a 15% deposit was making a monthly repayment of £1,091, based on the average mortgage rate of 4.22%.

This revealed a substantial difference, with 100% mortgages costing first-time buyers almost £370 (34%) more per month, equivalent to over £4,000 more annually than those choosing traditional mortgages with a deposit.

Skipton has increased its interest rate

Fast forward to the present, and Skipton has increased its interest rate to 6.19%, a 0.7% hike since May.

That’s while the average rate offered by conventional mortgage lenders has risen by 1.12% to 5.34% during the same period.

Despite the lower rate increase, today’s first-time buyers opting for a 100% mortgage still face a full monthly repayment of £1,572.

This is £340 (28%) more per month compared to those who opt for traditional mortgages with a 15% deposit.

Progress up the property ladder with a 100% mortgage

For existing homeowners seeking to progress up the property ladder with a 100% mortgage, the added cost of borrowing without a deposit is even more pronounced.

Based on the current average house price of £290,785, a buyer making a 20% deposit would be looking at a monthly repayment of £1,342 in today’s market.

However, choosing a 100% mortgage would increase this monthly cost by £565 (42%), resulting in a total monthly repayment of £1,907 — almost £6,800 more annually.