Ever since the financial crash and crisis of 2008, the 100% mortgage has been associated and intertwined with financial mismanagement and economic doom.
In actual fact the Northern Rock ‘Together Mortgage’, which most people associate with this period, was not, strictly speaking, a 100% mortgage (it was 95% secured loan combined with up to 30% unsecured), but it was around at the time of the “Run” on Northern Rock that heralded the start of the infection of financial disaster over to the UK.
The real problems were actually started by the creation of mortgage-backed securities called CDO’s (Collateralised Debt Obligations) which were a problematic cocktail of high risk loans from Sub-Prime Mortgages to dubious car loans that led to the eventual collapse of Lehman Brothers in the US, which was dramatised in the film “The Big Short”.
At the time, the Northern Rock products had been working quite well, there was minimal bad debt and the UK was riding high on the elixir of a booming housing market and economy.
However, it is fair to say that UK banks and their mortgage products had been taking their responsibilities of cautious stability too lightly. With self-certification and even non-status mortgages available, these under-collateralised institutions were playing fast and loose with what turned out to be the peoples’ money, and change was badly needed.
Considering the resulting partial nationalisation of Lloyds and Natwest (still partly in place) and the years of austerity that followed these events, it is little wonder that 100% mortgages ring alarm bells with some.
So, when Skipton Building Society announced that they were launching a new 100% product to the market place, at a time when the housing and mortgage market was just stabilising off the back of a rather large “wobble”, we all took notice.
In fact, the Skipton ‘Track Record’ 100% mortgage is a long overdue addition to the usual style of underwriting, which judges affordability only on the credit record and perceived affordability determined by a bank’s algorithms – along with a dose of common sense.
The product is aimed at renters, who are facing ever-increasing rents and a cost of living crisis, which means that saving for a deposit is nigh on impossible for many.
The Track Record mortgage looks at whether the potential borrower has been keeping up their rent payments, and making them regularly and on time over the last 12 months, and it uses that monthly payment as evidence of affordability of a similar (but not larger) monthly mortgage payment in the future.
Of course, you will still need to have a good credit record and fit within the lending parameters determined by the previous monthly payments, or the combined payments or you and a partner. However, the product is opening a door to a different way of looking at things, which is most welcome and may be the start of more innovative lending once more that tries to take a more common sense view of who can borrow and how much they can afford.
Skipton’s timing is also interesting and a definite vote of confidence in the strength of the UK housing market.
James Keable
Mortgage Services Director
Capital Private Finance
