Leeds Building Society is taking a new approach to credit scoring to help more first-time buyers get a mortgage and buy a home.

The building society has joined forces with credit reference agency Experian. They’ll allow first-time buyers applying for a mortgage to prove their financial track record with a wider range of payments.

Traditionally, credit scores only incorporate repayments for debt, such as credit cards, mortgages or loans.

But Leeds will now consider other regular direct debits during the past 12 months. They’ll include payments for council tax, subscriptions and even Netflix or Spotify.

Richard Fearon, chief executive at Leeds Building Society, said: “We’re proud to be the first mortgage lender in the UK to make it easier for aspiring homeowners by incorporating free ‘boosted’ credit scores.”

Leeds offers mortgages that require only a 5% deposit, with rates starting at 4.94% for a five-year fixed rate deal with a £999 product fee.

How does the new credit scoring work for first-time buyer mortgages?

Leeds Building Society will incorporate information from Experian’s free Experian Boost service. This will show you have kept up with regular payments.

The service uses Open Banking to look at payments made through your current account.

The Open Banking initiative allows you to share your banking data with third parties that are regulated by the Financial Conduct Authority through secure connections. The data cannot be shared without your explicit consent.

While Experian Boost is free for consumers to use, Leeds is the first mortgage lender to use it for lending decisions.

How many first-time buyers will be helped by this credit-scoring approach for mortgages?

Testing for the new approach found that 7.5% of applicants improved their credit score through using Experian Boost.

For some first-time buyers, this could be the difference between qualifying for a mortgage and not qualifying for one.

Leeds believes Experian Boost is particularly helpful for younger borrowers, first-time buyers, and those on lower incomes, who typically face the toughest challenges in proving they are credit-worthy.

Fearton said: “Often through no fault of their own, these groups can struggle to build a good credit score because they need to spend most of their earnings on rent and other regular payments. Indeed, the vast majority of existing Boost users are renters.”

How is your credit score worked out?

Credit reference agencies like Experian collect information about you from registers, lenders and other service providers.

Lots of factors impact your credit score, including credit applications, the amount you’ve borrowed and missed or late payments.

What is a good credit score?

Most credit agencies in the UK use a points system to determine your credit score.

This usually ranges from 0 - which is the lowest possible credit score - to 999 or 1000, which is the best credit score.

With Experian for example, a good credit score is anything above 721, while scores above 961 are deemed ‘excellent’.

What credit score do you need for a mortgage?

In general, the higher your credit score, the better your chances of getting a mortgage.

Lenders will take your score into account to decide how risky it is to lend to you.

So if you’ve shown you can pay all your bills on time, they deem you safer to lend to. This can mean they offer you a lower interest rate.

However, lenders also look at other things like affordability, income and account history to decide if you’re eligible for a mortgage.

In some cases, you can still get a mortgage if you have a bad credit score.

Each mortgage lender considers different scores to be ‘bad’. How much you owe and whether you’ve repaid debts can also make a difference.

What other initiatives can help first-time buyers get on the property ladder?

The Leeds Building Society initiative comes as Skipton Building Society has launched the first 100% mortgage to be offered since 2008.

The mortgage enables first-time buyers to purchase a property without a deposit and without a guarantor.

Instead, borrowers must provide evidence they have paid their rent on time for the past 12 months, as well as meeting the lender’s credit score and affordability criteria.

Another innovative scheme that was launched earlier this year to help first-time buyers is the Save to Buy initiative.

Offered by housebuilder Fairview New Homes, Save to Buy enables first-time buyers to move into their home and pay ‘rent’ at a fixed cost for between six months and two years. The money is set aside until it is enough to use as a deposit to qualify for a mortgage.

100% no-deposit mortgages have made a return for the first time since 2008.

It means first-time buyers can step onto the property ladder without saving for a deposit or having a guarantor.

Instead, first-time buyers must show they have paid their rent on time for the past 12 months. They must also meet the lender’s credit score and affordability criteria.

Skipton Building Society's Track Record Mortgage is aimed at first-time buyers who are currently renting.

The Track Record Mortgage offers a fixed interest rate of 5.49% for five years, with a maximum term of 35 years.

What is a 100% no-deposit mortgage?

A 100% no-deposit mortgage is a loan for the full purchase price of the property you’re buying.

Normally, you would put down a deposit - often around 10% to 20% of the property price - and borrow the rest from a mortgage lender.

With a 100% mortgage, you need zero deposit - which overcomes the challenge of saving for a deposit.

The no-deposit mortgage from Skipton is a fixed-rate mortgage for five years, which means the interest you pay will stay the same for the first five years of your term.

What Skipton Building Society said about their new no-deposit mortgage

Charlotte Harrison, Skipton's CEO of Home Financing, said: "With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people get onto the property ladder.

"We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time - so can evidence affordability of a mortgage. But there is currently no solution for them to buy a property due to lack of savings or access to family wealth.

"This is why we’re introducing our Track Record Mortgage."

Is the 100% no-deposit mortgage more expensive than other mortgage products?

The new no-deposit mortgage is good news for first-time buyers who want to get on to the property ladder but are struggling to save a deposit.

But it’s important to note that the product is slightly more expensive than the average five-year fixed rate mortgage, which currently has an interest rate of 5%.

On a £200,000 mortgage, this would cost you an extra £60 a month.

It is also worth remembering that 100% mortgages do not offer you any cushion if house prices fall. This means you face a higher risk of ending up in negative equity, when you owe more than your property is worth.

That said, if you’re frustrated about paying high rent and are not able to put together a deposit, the deal could still make sense for you.

When did 100% no-deposit mortgages stop?

Before 2008, 100% no-deposit mortgages were widely available. Some lenders even offered mortgages of up to 125% of the property’s value.

But the financial crisis of 2008 saw most 100% no-deposit mortgages stop. Mortgage lenders saw them as too risky to lend on during more difficult economic times.

They currently make up just 0.3% of all available mortgage products in the UK, according to moneyfacts.co.uk.

And they all require some form of financial backing from family or friends of the borrower. This makes the guarantor responsible for any missed mortgage payments.

It means Skipton's new no-deposit mortgage is the first of its kind to be available since 2008.

Can I afford to buy the home I rent with a 100% mortgage?

In the North East and Scotland, it works out cheaper to buy the home you rent with a 100% mortgage than to continue renting.

However, as you travel further south, the cost of paying a mortgage becomes more expensive as property values increase.

In London, where the average rent is £1,815 pcm, the monthly mortgage repayments on a £512K mortgage tested to an 8% stress rate would work out to be more than double the cost of renting, at £3,787.

That said, the repayments at a 5% mortgage rate would be considerably lower at £2,773.

A similar picture emerges for the South East, where rents are currently £1,160 pcm but monthly mortgage payments for a £300K mortgage tested to 8% would be £2,236.

The repayments at a 5% mortgage rate would be £1,638.

How much would it cost to buy the home I rent with a 100% mortgage?

The calculations below compare the cost of renting a home versus the cost of buying it across the UK.

The chart shows calculations based on a 35-year mortgage term for maximum buying power.

Why has Skipton Building Society brought out a 100% no-deposit mortgage?

Skipton has said that their 100% no-deposit mortgage aims to help renters trapped in renting cycles.

“We know there isn’t one quick solution to addressing this huge societal challenge of tenants being trapped in renting cycles, with rents escalating faster than mortgage payments and the increasing costs of living,” says Charlotte Harrison from Skipton.

“But doing nothing isn’t going to solve this UK housing issue.

"As a responsible lender, we need to be sensible with our approach for bringing this product to the market and ensure tenants don’t take on more than they can realistically afford.

“We know this product will not be able to help everyone and is only part of the solution for this group of people, but as a lender, we’re taking a stand to offer innovation in this space to help turn generation rent into generation buy.”

Our take on the 100% no-deposit mortgage

Our Executive Director of Research, Richard Donnell says: "The reduction in availability of higher LTV mortgages has had a big impact on first-time buyers, where the deposit required is the biggest barrier to home ownership.

"Data from the FCA shows that just 6% of first time buyers used a mortgage at or over 90% LTV in 2021."

Understanding loan-to-value ratios

"First time buyers who can raise a 20% deposit would see their mortgage repayments become up to 20% less than the monthly cost of renting in all regions of the UK outside of the south east of England, even with mortgage rates of 5%.

"But to do this, many will need to get help from parents and family.

"The introduction of 100% loans is designed to assist those with small deposits to access home ownership.

"The proposals from Skipton require the mortgage to cost the same - or less - than the monthly rental payments.

"This means the scheme will primarily benefit renters in more affordable housing markets in the north of England and Scotland, where house prices are lower, making a 100% mortgage more attainable.

"The scheme is unlikely to work as well in southern England, where prices are much higher, meaning mortgage repayments would be well over the level of rents.

"The exception would be if first-time buyers were moving from a home where the rent is currently high, for example central London or central Manchester, to the outskirts of a city where the mortgage for a property is likely to be cheaper.

"High loan to value lending is set to remain a niche product but innovations such as this do help improve home ownership options for some households.

"That said, households will be wary of negative equity, should prices fall back in the areas where this product works."

What other 100% mortgages are available?

A handful of lenders already offer 100% mortgages that require some form of guarantee from a parent, family member or friend.

For example, Barclay’s Family Springboard Mortgage enables first-time buyers to borrow 100% of their property’s value if a ‘helper’ deposits savings equivalent to 10% of the purchase price in a designated savings account.

Other deals require family members to guarantee a portion of the loan above a certain level.

Compare 100% mortgage deals at Money.co.uk

Other financial help for first-time buyers

If a 100% no-deposit mortgage isn’t right for you, a buying scheme could be an option instead.

There are a number of schemes available to help you buy a property if you’re able to save a small deposit.

The government’s Mortgage Guarantee Scheme enables first-time buyers and home-movers to purchase a property with just a 5% deposit.

Meanwhile, First Homes enables local first-time buyers and key workers to purchase a home at a 30% discount to its market price, and Shared Ownership enables people to buy a share in a property and pay rent on the rest.

Housebuilder Fairview New Homes recently launched a Save to Buy initiative, under which first-time buyers move into their home and pay ‘rent’ at a fixed cost for between six months and two years, with the money set aside until it is enough to use as a deposit to qualify for a mortgage.

A total of 5,146 mortgage products are now available, the highest level since February 2022, according to financial information group Moneyfacts.

The increase in choice is across all deposit levels, with nearly 140 new products launched for people with only a 10% deposit, taking the total number to 684 and putting it on a par with availability for those with a 40% deposit.

Meanwhile, the number of different mortgages available for people with a 15% deposit has reached its highest level since Moneyfacts records began.

What's happening with mortgage rates?

Mortgage rates rose sharply and lenders withdrew large numbers of products in the wake of former Chancellor Kwasi Kwarteng’s mini-budget in September last year.

But rates have been on a steadily downward path since October, as lenders repriced their deals following falls in the rate at which they borrow money for fixed rate mortgages.

The average interest rate charged on a five-year fixed rate mortgage dropped by 0.23%, despite the Bank Rate increasing by 2% during the same period.

However, inflation remains stubbornly high, meaning interest rates are unlikely to drop much further for the rest of this year.

Average rates for different loan-to-value mortgages

Product choice for first-time buyers has increased, not just for those with a 10% deposit, but also for those with a 5% one, with the number of deals in this space rising to 204 now, up from 161 in March and just 34 two years ago.

The average interest rate charged on five-year fixed rate mortgages for people with a 5% deposit has also fallen slightly, dropping by 0.06% to 5.27%.

However, mortgage costs for buyers with a 10% deposit have seen slight increases, with two-year deals rising by 0.14% and five-year ones by 0.27% to stand at 5.64% and 5.26% respectively.

For people borrowing 60% or less of their home’s value, the cost of deals has bucked the trend in the wider mortgage market.

Two-year fixed rate products have dropped by 0.06% to average 4.95%, while five-year ones have fallen by 0.11% to 4.65%, as lenders continue to compete for business in this sector.

What should I do if I need to remortgage?

The average interest rate charged on a standard variable rate mortgage – the rate you are automatically moved to when your existing deal ends if you do not remortgage – has risen to 7.3%, the highest level since February 2008.

The cost of a two-year tracker mortgage compared with a two-year fixed rate one has narrowed during the past month, with tracker deals now averaging 5.02%.

Unlike a fixed rate mortgage, the interest rate charged on a tracker mortgage moves up and down in line with changes to the Bank Rate.

This means that if interest rates rise again, so will your monthly mortgage repayments, but if they fall, the amount you pay will go down.

Meanwhile, five-year fixed rate mortgages continue to be cheaper than two-year ones.

Mortgage rates crept up a little in April, with the average cost of a five-year deal edging ahead by 0.05% to 5.05%, while two-year fixed rate mortgages rose by 0.03% to 5.35%.

This suggests that mortgage lenders expect interest rates to remain high in the short term, but be lower again in three to five years’ time.

Best buy deals offering interest rates of below 4% are still available to homeowners with large deposits and we expect new fixed-rate mortgages to largely remain between 4% to 4.75% on average for most of 2023.