Until last year, Conroy, 32, and his partner Amber, 28, saw little prospect of owning their own home. They were renting in central Manchester where they work and could not afford to save up for a deposit. Then they came across a relatively niche, and some experts say riskier, type of mortgage that offered a solution.
The Track Record mortgage from Skipton Building Society covers 100% of the value of a property, with the borrower paying nothing upfront. Borrowers must meet strict eligibility checks and pay a higher interest rate - in Conroy and Amber's case 5.33% fixed for five years - but they were happy to do this. And in August they bought a four-bed home for £242,000 in Swinton on the edge of Manchester.
"I don't think it's dawned on us it's really ours," says Conroy, a video editor. According to the Bank of England, the share of UK mortgages with deposits worth less than 10% of the property's value is currently the highest it has been since 2008, external when such loans were widely available. The average deposit for first-time buyers is currently around 20%.
It comes as lenders such as Lloyds, Santander, Skipton and Yorkshire Building Society have launched a raft of new mortgage deals over the last few years covering upwards of 95% of the value of a property, and in some cases as much as 100%. They say they want to help first-time buyers get on the housing ladder as property prices continue to rise and while saving for a deposit remains a struggle. But these loans tend to charge higher rates, aren't available for all types of property or borrower, and come with risks customers should be aware of.
Conroy and Amber, a solicitor, have a 25-year loan with monthly repayments of £1,500 - roughly what they were paying in rent. He says they feel comfortable with the higher cost because they "earn quite well" and expect their salaries to rise. But he is aware there is a greater risk of falling into negative equity with a no- or low-deposit mortgage.
That is when the value of a property falls below the value of the loan still owed on it - leaving the borrower with potentially painful costs if they suddenly have to sell. Conroy says they plan to overpay their mortgage for the first five years to build up more equity in their home. "There is always the element of a gamble with the property market," he says.
Extract — continue reading at the source.
