Bank of England Governor Andrew Bailey is concerned about quite a few problems that can arise from 100% mortgages being offered at no deposit demand. The warning comes in as the bank raised interest rates again.
Skipton’s 100% mortgage policy requires borrowers to show that they have had 12 months of on- time rental payments and a good credit history. Unlike many other no deposit deals, this deal doesn’t require any guarantor. According to Skipton, the deal will help cover the “gap in the market”, given the fact that the cost- of- living crisis has made it very difficult for first time buyers to save up.
The zero- deposit policy, however, was one of the contributing factors behind the 2008 financial crisis where borrowers weren’t able to afford their repayments. The rate for Skipton’s latest 100% mortgage deal is 5.49% which is more expensive as compared to the current average five- year fixed deal of 5%. The increased interest rates have increased the mortgage rates which also has many borrowers struggling.
The increased interest rate will have some mortgage holders see an immediate increase in their repayments as well. The governor, on the other hand, is optimistic about the economic growth the country will likely see this year and has predicted that UK will avoid recession.