No Deposit Mortgage for First-Time Buyers: Options, Risks, and Alternatives

What is a Track Record Mortgage (also being referred to as no deposit mortgages)?  In simple terms if you are a first-time buyer with a track record of paying rent and household bills, you can apply for a mortgage for up to 100% of the purchase price.  

Is this something that will change the face of mortgage lending or is it just another way for the Government to try to put a good news story into the press? My opinion is perhaps it is a mixture of both.  

Understanding No Deposit Mortgages

Currently (as of today) there is only one high street lender who offers a “no deposit mortgage”.  This is their criteria:

• Up to 100% LTV (loan to value) mortgage for first-time buyers currently renting, who can demonstrate a track record of affordability of ALL monthly rent and household expenditure for a minimum of 12 months in the last 18-month period
• The monthly mortgage payment must be equal or lower than the average of the last 6 months rental cost – e.g. if the average rent over the last 6 months is £800, the mortgage payment must be £800 or lower
• Max term 35 years
• Max 4.49 x Income Multiple

What this means in real terms is that the lender will still need to make sure you meet their income requirements and you have to prove you have been paying rent for the last year.  They will then base their lending to you on an income multiple of 4.49%, as long as the mortgage repayments are not more than the rent you have been paying.  

For example if your income is £30,000 per year and your monthly rent has been £800 per month, then they will lend you up to £147,000 as long as the monthly mortgage is not over £800 per month.

There are some other criteria you would need to fit into as well, such as a maximum overall loan available of £600,000, that you are aged over 21, you’ve never missed any credit card payments etc. Also, and importantly, the person applying for the mortgage must be the person who has been paying the rent for the last year.  If the rent was paid by two people then both must also be on this mortgage.

Introduction of 0% Mortgages to Help Renters

With tight criteria and only one lender currently offering this you can see why I am perhaps suggesting this scheme could be as much about headline grabbing as it is about actual help for first time buyers.  Saying that I would imagine that there are some people who are able to satisfy all this and who are unable to build up a deposit and for them, this could be a lifeline for buying their first home.

Alternative Options for First-Time Buyers

For those who cannot satisfy this one lender please do not panic - there are still options for you for you to buy your first home. For instance, you can borrow as much as 95% of the purchase price with many lenders, meaning just a 5% deposit is needed. 

Also if you have generous family or friends, then a gifted deposit could really help you. This can be as much as the full deposit you need or help you bridge the difference between what you have and what you need.  

These are not loans though, so whoever gifts you the deposit will need to know it is not repayable.  Another alternative, if you need to prove a higher income to borrow more, is to have a guarantor.  This works well if it’s a family member (a parent perhaps) who has an income that they are not using on another mortgage and they are willing to guarantee a lender that they will help you pay your mortgage if you ever cannot.  

Again, this is a commitment to the guarantor, but if they are willing to help then it really can help a first-time buyer get on the property market.

Summing it up…

So a 100% Mortgage, otherwise known as Track Record Mortgage is most definitely a real thing and it is designed to help those people renting to get on the property market themselves for the first time.  It is another tool in the bag to help stimulate the property market and to give a genuine helping hand to people who just can’t build up a deposit.  

Sadly the criteria is pretty hard to satisfy and because of that there is currently only one high street lender in the market willing to offer it.  But any innovation in lending is a good thing and for those people able to tick all the boxes it is well worth looking at.

For the rest of us out there it is still a case of having to save for a deposit and make sure we can afford what we are committing to.  But owning our own property is still something the majority of us aspire to so it is well worth having a chat with your Crunch Mortgage Advisor and just finding out what you can do today, or how you can plan for buying your first property in the future.