Why renters like me shouldn't be tempted by a shortcut to homeownership

Telegraph

02-06-2025

In 2025 it is notoriously difficult to buy your own property. House prices are now almost eight times the average full-time salary, having risen by 23pc over the pandemic according to official data.
In response, lenders are offering innovative products to help first-time buyers get a foot on the property ladder. The most eye-catching among these is the 100pc mortgage – where you don't need a deposit in order to buy.
These loans aren't new. Before the global financial crash, they were more readily available when lenders were happier shouldering the risk.
However, they're back. In 2023 Skipton announced its Track Record Mortgage, which allows renters to use their record as a tenant to get a loan to the full value of a property. In the last month Gable Mortgages and April Mortgages have both launched no-deposit loans. There are also guarantor and family deposit mortgages where a friend or family member agrees to make up any shortfall in payments if necessary or places the equivalent of a deposit in a savings account linked to the loan.
As a renter for more than a decade, this should be welcome news; a chance to own my own place without the hurdle of saving a deposit. However, I wouldn't dare. A whole property loan is a terrible proposition. The ramp up in no deposit mortgage options also comes as the Financial Conduct Authority (FCA), with support of the Chancellor, is looking at loosening the rules around mortgage lending for first-time buyers, increasing the risk of borrowers ending up with mortgages they cannot afford.
The biggest and most obvious risk is that you could wind up in negative equity – where the amount you owe is greater than the value of your property.
House price growth has fluctuated significantly over the past few years, with values falling 2.7pc in December 2023 but rising 6.4pc in March this year. While interest rates are slowly falling there is no major impetus on the horizon, such as the stamp duty relief we saw during the pandemic. My colleague Josh Kirby has written about why homeowners face a hangover after the frenzied activity during the pandemic.
If you have a solid 10pc of equity in your property you're likely to be keeping half an eye on values but you can weather the usual ups and downs of the market. Without it, unless you are confident you can buy equity in the property rapidly, you risk becoming trapped. Gable Mortgages' 100pc loan even includes options for new-build properties that have traditionally not been eligible under these loans, in part due to the lack of certainty around their values.
You will also probably be paying a higher interest rate than other borrowers with similar sized loans. While rates have been very gradually falling over the past 12 months, those for 100pc mortgages are notably higher making it an expensive way to borrow.
Buying over renting will usually involve a calculation about whether you are paying more to your landlord or the lender in interest payments. If you increase the cost of your borrowing you may be losing more than if you were renting, and reduce the amount you can put either into you property to gain some equity or a deposit savings account to be invested into a home later on.
Currently providers are offering rates of between 5.3pc and 6pc, whereas average rates in the market sit between just under 4pc and 5pc, according to The Telegraph's Best Buy data. What is more, some lenders demand you lock in these rates for up to 15 years leaving you at risk of paying substantially more than other borrowers if rates fall.
These higher rates mean you eat into the money you have available to pay down the loan itself, as well as paying more overall. It also leaves you with less financial flexibility if something goes wrong such as illness or losing your job. That said, some lenders do offer rates that drop as you increase your equity in recognition of the reduction in the risk they are taking.
Then there is the issue of remortgaging. There are a limited number of lenders offering 100pc or even 95pc loans so when it comes to the end of your mortgage term you may struggle to find a better option. It means you will need to make a significant dent in your equity in order to be confident you can move to a better rate.
There is also the risk that you cannot remortgage and are forced on to your lender's standard variable rate which will be much higher. Currently the average five-year fixed rate is 5.08pc while the average SVR is sitting at 7.58pc. While renting contains the obvious element of uncertainty if your rent becomes affordable you can move (I appreciate it isn't always quite that easy), whereas with mortgage rates you are trapped unless you wish to sell, which comes with its own list of issues and uncertainties.
If you want to sell your property and you're in negative equity or haven't been able to build up a meaningful sum of equity yourself, you risk falling into debt in order to cover the difference, or no better off than when you started.
At a time when costs are continuing to rise (a drop in the rate of inflation just means prices are rising slower, not dropping) that is no small task. Particularly when you consider the inevitable costs you incur from the wear and tear of owning a property that will eat into your savings, something renters live without.
It is also worth remembering that 100pc mortgages do not mean you can simply own a property tomorrow, far from it.
Rightly the loans have strict eligibility requirements you will have to meet, requiring a strong credit score and a reliable long-term income often above and beyond the criteria for other mortgages. And while you avoid having to put together a deposit you will still face the substantial costs associated with home buying including stamp duty land tax as well as legal, survey and moving costs all of which will likely total thousands.
I would rather take the time to build up a lump sum that includes the estimated costs of buying and moving rather than only saving enough to cover the practical costs of buying that leaves you exposed if something goes wrong and you need more money.
When Skipton first launched its 100pc mortgage a mortgage broker told me the ideal candidate was a newly qualified city lawyer on a salary of more than £100,000 (before bonus) looking at a rapid upward earnings trajectory. That makes sense.
They won't have had time to save but can be close to certain they'll be able to overpay and own a substantial part of their property by the time they come to remortgage.
However, for the rest of us the risk is too great. It may take you (and me) longer to save but when you buy your own home, you will do so knowing it's yours and unlikely to be taken away from you.