A Review of Skipton’s Residential Track Record Mortgage

Written on 16 May 2023 by Ray Boulger

A Review of Skipton’s Residential Track Record Mortgage

Skipton Building Society’s launch of the first 100% LTV mortgage since 2008 which does not require family support is not only welcome for FTBs (first-time buyers) who can meet its criteria but may also be worth considering for some FTBs who have the offer of family support.

I will first summarise key criteria points and then look at why even some FTBs with family help available might find this mortgage attractive.

The Residential Track Record mortgage is only available to first-time buyers currently renting and it addresses a common complaint of renters that they can’t get a mortgage even if their monthly payments would be no more than the rent they are paying. The maximum mortgage available is calculated by reference to the monthly rent payments.

The initial mortgage rate is 5.49% fixed to 31/8/28 with no arrangement fee.

To qualify for this mortgage applicants must meet the following criteria:

  • Minimum age of 21 (applies to all if a joint application, even for an applicant with no income)
  • Must be a FTB (again applies to all if a joint application)
  • Must have a good credit record, with no missed payments in the last 6 months - including on things like mobile phone bills
  • Must be able to prove having paid rent for at least 12 consecutive months within the last 18 months
  • Must have 12 months of experience paying all household bills within the last 18 months
  • Applicant(s) must be the same person (people) who have been renting
  • Maximum loan £600,000

The next question for potential applicants who meet the above criteria will be: how much can I borrow? Or to put it another way: what is the maximum purchase price I can pay?

This is calculated as follows: *the monthly mortgage payment must be no more than the average of the last 6 months rental cost*.

The maximum term is 35 years, subject to no applicant being older than 40 when the mortgage commences. Some applicants may prefer a shorter term but a 35 year term allows the largest loan and, as an example, rent payments of £1,000 per month would allow a maximum loan of £186,442 and pro rata. The maximum loan is limited to 4.49x income and so this example would need a minimum income (single or joint) of £41,524.

For the affordability calculation Skipton will of course take account of any other financial commitments but importantly affordability is calculated at the pay rate, not a higher stressed rate.

If a couple are buying together and each previously rented individually their combined rental payments can be used to calculate the maximum loan, provided each previously lived on their own.

Unlike many high LTV mortgages this mortgage is available on new build houses, although not on new build flats.

Some other points to consider:

  • 5.49% is a very good rate for a 100% mortgage but the best rates at 95% LTV are at least 0.5% lower
  • The ERC (early repayment charge) (6%/6%/5%/4%/1.75%) is higher than on most 5 year fixes and so purchasers need to be confident that they will be staying in the property for at least 5 years. Even with the capital repayments and no change in the property value the ERC could result in negative equity in the early years
  • Assuming unchanged property value and a 35 year term, the LTV would have reduced to 95% after 5 years
  • Negative equity is always a risk but there are different risks in continuing to rent, including the likelihood of rent increases over the 5 years as opposed to fixed mortgage payments, no security of tenure or the ability to make changes to the property without the landlord’s permission
  • Skipton’s current product range only includes retention products up to 90% LTV but to comply with Consumer Duty I am confident that Skipton will offer sensibly priced retention options for borrowers, even if the LTV remains close to 100%
  • The minimum loan on this mortgage is 95.01% but ERC overpayments of up to 10% p.a. can be made. Therefore, a renter with a deposit of, say, 10%, who qualifies for this mortgage but not alternative 90% LTV mortgages could apply at 95.01% and repay 5% of the loan shortly after completion
  • Some renters may be interested in buying the home they are renting and more landlords than usual are thinking of selling. Any cost saving in such an arrangement could be shared between the FTB and the landlord and the FTB would avoid the hassle and cost of moving

As mentioned at the top of the article I think even some FTBs with family help available might find this mortgage attractive for the following reasons:

  • The rate is cheaper than some other options. For example, Barclays Family Springboard Mortgage is also fixed for 5 years but the rate is 5.89% at 100% and 5.84% at 95%, despite the 10% deposit a family member must place in a savings account with Barclays reducing the effective net LTV by 10%
  •  Even with family help for the deposit FTBs must still meet lenders’ affordability tests for the full amount of their mortgage, which in some cases may mean that despite qualifying for a 100% mortgage from Skipton they don’t qualify for a lower LTV mortgage from other lenders. However, several building societies offer lower rates, including in a few cases to 100% LTV, with a 20% linked family deposit and some offer sole proprietor, joint borrower mortgages. Therefore, if family help is available it is important to fully consider all options with and without such help

Estate agents may be less inclined to recommend to their vendor clients a purchaser who requires a 100% mortgage and so before actively starting their search for a home FTBs should consult a good independent whole of market mortgage broker such as John Charcol who can not only advise on all available mortgage options, but will also where required actively engage with the estate agent to allay any fears about the availability of adequate mortgage finance. Get in touch with us on 0330 433 2927.

Category:Ray Boulger