Return of the zero-deposit mortgage isn’t reckless — it’s just what London renters need
City comment: Skipton’s new deal might trigger flashbacks to Northern Rock in the Noughties, but look closely and you’ll see the differences
Renters who lack savings or financial support from their family can potentially make the jump on to the housing ladder with a new zero-deposit mortgage
/ Chris Ison/PA Archivet is hard to read a headline about the “return of the 100% mortgage” without a Pavlovian frisson of alarm.
It was reckless “zero deposit” lending by the likes of Northern Rock in the Noughties that helped pour fuel on the flames of the credit crunch and subsequent financial crisis.
Those of us with longer memories will recall how the negative equity disaster of the early Nineties followed another cycle of bad lending decisions and bunged up the housing market for the best part of a decade.
But these are different times with different challenges and on closer inspection the new 100% LTV product from Skipton building society has much to recommend it.
It is aimed at renters who struggle to raise the huge deposits demanded by most lenders to unlock reasonable interest rates. This is a particularly acute problem in London where tenants face rocketing rents and house prices still within touching distance of all-time highs.
Skipton says it will not allow borrowers to pay more for their mortgage than they were handing over in rent. Applicants will also need to demonstrate at least a 12-month track record of paying their rent on time.
That should take care of concerns about affordability but does not eliminate the risk of negative equity.
While that is always an uncomfortable place for a homeowner to be it is not in itself a catastrophe.
While Britain remains at near-full employment the vast majority of owners should be able to sit it out and wait for the magic of capital repayment to chip away at the debt mountain and eventually restore their equity.